Commenters frequently ask me what would be the point of higher inflation expectations. Doesn’t the rational expectations model imply that only unanticipated inflation has real effects? Yes and no. As far back as the late 1970s people like Fisher had already shown that in a new Keynesian ratex model with sticky prices, monetary policy could still influence real variables. For this to happen, the monetary shock must occur after some wage or price decisions have already been made, but before those wages and prices are scheduled to be re-adjusted.
We have a word for this concept, fraud.
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