Corpus ID: 15674847

Do Higher Interest Rates Raise or Lower Inflation ?

  title={Do Higher Interest Rates Raise or Lower Inflation ?},
  author={J. Cochrane},
The standard “new-Keynesian” model accounts well for the fact that inflation has been stable at a zero interest rate peg. However, If the Fed raises nominal interest rates, the same model model predicts that inflation will smoothly rise, both in the short run and long run. This paper presents a series of failed attempts to escape this prediction. Sticky prices, money, backward-looking Phillips curves, alternative equilibrium selection rules, and active Taylor rules do not convincingly overturn… Expand
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