Interest Rates Rigidities and the Fisher Equation

Gilles Bélanger

MPRA Paper from University Library of Munich, Germany

Abstract: The literature on nominal interest rates rigidity does not fully address its macroeconomic implications. How nominal interest rates rigidity would interact with the Fisher equation is simple, yet the implications are surprising. If nominal rates cannot catch up to real rates, the Fisher effect becomes inverted in the short term: big enough credit crunches bring deflation and central banks must lower interest rates to stimulate inflation. The paper shows that nominal interest rates rigidity is sufficient to characterize the little we know about inflation. It also shows that, unlike for other products, the pricing of loans is influenced by past negotiated loans, generating rigidity.

Keywords: Interest Rate Rigidity; Inflation; Monetary Policy. (search for similar items in EconPapers)
JEL-codes: E31 E43 E52 (search for similar items in EconPapers)
Date: 2014-02-25
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://mpra.ub.uni-muenchen.de/57655/9/MPRA_paper_57655.pdf revised version (application/pdf)

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