The neo-Fisherian effect in a new Keynesian model with real money balances

Ida, Daisuke (2024): The neo-Fisherian effect in a new Keynesian model with real money balances.

Abstract

This study explores how the real money balance effect (RMBE) affects the neo-Fisherian effect (NFE) in a standard new Keynesian (NK) model. Our main findings are summarized as follows. First, the presence of the RMBE can partly explain the occurrence of the NFE. Furthermore, increasing the nonseparability parameter in the utility function magnifies the nominal interest rate's positive response to a persistent inflation target shock. Second, the degree of nominal price stickiness is important in explaining how the RMBE amplifies the NFE. Third, introducing inflation inertia into the Phillips curve eliminates the NFE.

• Item Type: MPRA Paper
• Language: English
• Keywords: Neo-Fisherian effect; New Keynesian model; Real money balances; Interest rates; Inflation
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

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