Here is a simple way to think about the correlations between nominal interest rates and inflation rates. We need to distinguish between three "Fisher curves": the long run; the medium run; and the short run Fisher curve. We need to distinguish between: the actual inflation rate; the central bank's inflation target; and what people expect […]

I have been arguing with John Cochrane and Steve Williamson over whether central banks announcing higher nominal interest rates is inflationary or deflationary. The very fact that economists are arguing about that very basic question tells us something important about central banks' using nominal interest rates as a communications strategy: it sucks. This is a […]

This is in response to John Cochrane's good post. First off, you need to understand that Keynesians don't actually believe their own New Keynesian models. When they reason informally, they always assume inertia in actual or expected inflation. But the standard New Keynesian model, with the Calvo Phillips Curve, doesn't have inflation inertia in it. […]