Inflation Shocks and Interest Rate Rules

Barbara Annicchiarico and Alessandro Piergallini

CEIS Research Paper from Tor Vergata University, CEIS

Abstract: Recent empirical evidence by Fair (2002, 2005) and Giordani (2003) shows that a positive inflation shock with the nominal interest rate held constant has contractionary effects. These results cannot be reconciled with the standard "New Synthesis" literature. This paper reconsiders the effects of inflation shocks in a simple New Keynesian framework extended to include wealth effects. It is demonstrated that, following an inflation shock, the decline of output coupled with passive interest rate rules is not puzzling.

Keywords: Interest Rate Rules; Nominal Rigidities; Overlapping Generations; Inflation Shocks. (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 23
Date: 2006-06-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Journal Article: Inflation shocks and interest rate rules (2006)
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