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Interest Rates Rigidities and the Fisher Equation

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  • Belanger, Gilles

Abstract

The literature on nominal interest rates rigidity does not fully address its macroeconomic implications. How nominal interest rates rigidity would interact with the Fisher equation is simple, yet the implications are surprising. If nominal rates cannot catch up to real rates, the Fisher effect becomes inverted in the short term: big enough credit crunches bring deflation and central banks must lower interest rates to stimulate inflation. The paper shows that nominal interest rates rigidity is sufficient to characterize the little we know about inflation. It also shows that, unlike for other products, the pricing of loans is influenced by past negotiated loans, generating rigidity.

Suggested Citation

  • Belanger, Gilles, 2014. "Interest Rates Rigidities and the Fisher Equation," MPRA Paper 54705, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:54705
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    References listed on IDEAS

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    Cited by:

    1. Belanger, Gilles, 2016. "Inequality Causes Recessions: A Fallout from Ramsey's Conjecture," MPRA Paper 72335, University Library of Munich, Germany.
    2. Belanger, Gilles, 2016. "Inflation is Always and Everywhere an Interest-Rate Phenomenon," MPRA Paper 70841, University Library of Munich, Germany.
    3. Tomás Marinozzi & Mariano Fernández, 2020. "Una breve revisón sobre la literatura de las metas de inflación," CEMA Working Papers: Serie Documentos de Trabajo. 755, Universidad del CEMA.

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    More about this item

    Keywords

    Interest Rate Rigidity; Inflation; Monetary Policy.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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