Unconventional views on inflation control: Forward guidance, the Neo-Fisherian approach, and the fiscal theory of the price level

Peter Spahn

No 02-2018, Hohenheim Discussion Papers in Business, Economics and Social Sciences from University of Hohenheim, Faculty of Business, Economics and Social Sciences

Abstract: In recent years, various "unconventional" views have been advanced that promise to offer new analytical insights and policy approaches that are suited to control the value of money, particularly in a constellation of low growth and unemployment. Whereas Forward Guidance attempts to decrease the real interest rate by low nominal rates and by creating excessive inflationary expectations, the Neo-Fisherian approach suggests to increase nominal rates immediately to the long-run equilibrium value that corresponds to the inflation target. The Fiscal Theory of the Price Level believes that goods prices jump to a level that validates the long-run sustainability condition of government debt. All three views are criticized for analytical and empirical reasons.

Keywords: interest rate policy; zero-lower bound; low-growth equilibrium (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:hohdps:022018

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