Interest Rate Pegs in New Keynesian Models∗
نویسندگان
چکیده
The conventional policy perspective is that lowering the interest rate increases output and inflation in the short run, while maintaining inflation at a higher level requires a higher interest rate in the long run. In contrast it has been argued that a Neo-Fisherian policy of setting an interest-rate peg at a fixed higher level will increase the inflation rate. We show that adaptive learning argues against the neo-Fisherian approach. Pegging the interest rate at a higher level will induce instability and most likely lead to falling inflation and output over time. Eventually, this would precipitate a change of policy. JEL Classifications: E31; E32; E52; D84; D83
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