Working Paper: NBER ID: w25089
Authors: MartÃn Uribe
Abstract: This paper investigates whether permanent monetary tightenings increase inflation in the short run. It estimates, using U.S. data, an empirical and a New-Keynesian model driven by transitory and permanent monetary and real shocks. Temporary increases in the nominal interest-rate lead, in accordance with conventional wisdom, to a decrease in inflation and output and an increase in real rates. The main result of the paper is that permanent increases in the nominal interest rate lead to an immediate increase in inflation and output and a decline in real rates. Permanent monetary shocks explain more than 40 percent of inflation changes.
Keywords: No keywords provided
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| permanent increases in the nominal interest rate (E43) | immediate increase in inflation (E31) |
| permanent increases in the nominal interest rate (E43) | immediate increase in output (E23) |
| permanent increases in the nominal interest rate (E43) | decline in real rates (E43) |
| permanent monetary shocks (E39) | changes in inflation (E31) |
| permanent increases in the nominal interest rate (E43) | higher long-run level of inflation (E31) |
| permanent increases in the nominal interest rate (E43) | no output loss (Y70) |
| permanent monetary shocks (E39) | low real interest rates (E43) |