Can a Policy of Higher Inflation Reduce Real Interests in the Long Run?

Marco Espinosa-Vega () and Steven Russell

Canadian Journal of Economics, 1998, vol. 31, issue 1, 92-103

Abstract: This paper describes a simple general equilibrium model in which a permanent easing of monetary policy, engineered via open market purchases, may produce a permanent decrease in the real interest rate and a permanent increase in the inflation rate. Under somewhat stronger assumptions, the nominal interest rate may also decline.

Date: 1998
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