The neo-Fisherian effect in a new Keynesian model with real money balances

Daisuke Ida

The North American Journal of Economics and Finance, 2025, vol. 80, issue C

Abstract: This study explores how the real money balance effect (RMBE) affects the neo-Fisherian effect (NFE) in a standard new Keynesian (NK) model. Our main findings are summarized as follows. First, the presence of the RMBE can partly explain the occurrence of the NFE. Furthermore, increasing the nonseparability parameter in the utility function magnifies the nominal interest rate’s positive response to a persistent inflation target shock. Second, the degree of nominal price stickiness is important in explaining how the RMBE amplifies the NFE. Third, introducing inflation inertia into the Phillips curve eliminates the NFE.

Keywords: Neo-Fisherian effect; New Keynesian model; Real money balances; Interest rates; Inflation (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2025
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Working Paper: The neo-Fisherian effect in a new Keynesian model with real money balances (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:80:y:2025:i:c:s1062940825001111

DOI: 10.1016/j.najef.2025.102471

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