Monetary Policy and Inflation: Is there a Neo- Fisher Effect? Evidence from Inflation Targeting Countries in Central and Eastern Europe

Pleșcău Ioana ()
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Pleșcău Ioana: “Alexandru Ioan Cuza†University of Iasi

Ovidius University Annals, Economic Sciences Series, 2017, vol. XVII, issue 1, 578-583

Abstract: In this study we empirically investigate the influence of the low interest rate environmentadopted by inflation targeting countries from Central and Eastern Europe as a rescue measureafter the outbreak of the financial crisis. Moreover, we focus on examining the existence of a NeoFishereffect that may explain the positive relation between interest rates and inflation, withcausality from interest towards inflation rate. We employ a Vector Autoregressive model, togetherwith an impulse response analysis and a variance decomposition technique, to capture theresponse of economic growth and inflation to shocks to the monetary policy. Our main results pointto a negative relation between policy rates and economic growth, as predicted by the economicliterature. However, results show a significant positive relation between interest rates andinflation, meaning that negative shocks to interest rates lead to lower inflation. Also, we find thatthe response of inflation and economic growth is the same, regardless of the crisis or non-crisisperiod.

Keywords: interest rates; inflation; Neo-Fisher effect; monetary policy (search for similar items in EconPapers)
JEL-codes: E31 E43 E52 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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