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The Neo-Fisherianism to Escape Zero Lower Bound

Chattopadhyay, Siddhartha (2019): The Neo-Fisherianism to Escape Zero Lower Bound.

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Abstract

Sufficiently persistent rise in nominal interest increases inflation rate in short-run. This short-run comovement of nominal interest rate and inflation rate is known as Neo-Fisherianism. This paper proposes a policy based on Neo-Fisherianism to escape Zero Lower Bound (ZLB) using a textbook forward looking New Keynesian model. I have shown that proposed policy with properly chosen inflation target and persistence can stimulate economy and escape ZLB by raising nominal interest rate. I have also shown that the proposed policy is robust to varying degrees of price stickiness.

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