The neutrality of nominal rates: how long is the long run?

João Valle e Azevedo; João Ritto; Pedro Teles

doi:10.1111/iere.12584

The neutrality of nominal rates: how long is the long run?

João Valle e Azevedo^*
, João Ritto
, Pedro Teles

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

Abstract

We revisit the empirical relationship between policy interest rates and inflation aimed at understanding the reasons for persistently low inflation in Japan and the euro area and why monetary policy has been unable to raise it. We document the long-run positive relationship between nominal rates and inflation across countries and across time. We also find that a permanent rise in nominal rates leads to an increase in inflation, also in the short run. These findings suggest that the low inflation outcomes are a result of policy rates being kept too low for too long.

Original language	English
Pages (from-to)	1745-1777
Number of pages	33
Journal	International Economic Review
Volume	63
Issue number	4
DOIs	https://doi.org/10.1111/iere.12584
Publication status	Published - Nov 2022

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10.1111/iere.12584

Cite this

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abstract = "We revisit the empirical relationship between policy interest rates and inflation aimed at understanding the reasons for persistently low inflation in Japan and the euro area and why monetary policy has been unable to raise it. We document the long-run positive relationship between nominal rates and inflation across countries and across time. We also find that a permanent rise in nominal rates leads to an increase in inflation, also in the short run. These findings suggest that the low inflation outcomes are a result of policy rates being kept too low for too long.",

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The neutrality of nominal rates: how long is the long run?

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CUBE: Católica Lisbon Research Unit in Business and Economics

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The neutrality of nominal rates: how long is the long run?

Abstract

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CUBE: Católica Lisbon Research Unit in Business and Economics

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