Inflation and output in New Keynesian models with a transient interest rate peg

Charles Carlstrom, Timothy Fuerst and Matthias Paustian ()
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Matthias Paustian: Bank of England, Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH

No 459, Bank of England working papers from Bank of England

Abstract: Recent monetary policy experience suggests a simple test for models of monetary non-neutrality. Suppose the central bank pegs the nominal interest rate below steady state for a reasonably short period of time. Familiar intuition suggests that this should be inflationary. We pursue this simple test in three variants of the familiar Dynamic New Keynesian (DNK) model. Some variants of the model produce counterintuitive inflation reversals where an interest rate peg leads to sharp deflations.

Keywords: Fixed interest rates; New Keynesian model; zero lower bound (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2012-07-20
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (47)

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Related works:
Journal Article: Inflation and output in New Keynesian models with a transient interest rate peg (2015)
Working Paper: Inflation and output in New Keynesian models with a transient interest rate peg (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0459

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