Inflation is the main determinant of the stochastic component of short-term nominal interest rates. The Federal Reserve can, therefore, permanently lower short rates only by reducing inflation. In the short run, the behavior of nominal rates is determined primarily by the outlook for inflation,...

The main implication of the Quantity Theory of Money is that long-run movements in the price level are determined primarily by long-run movements in the excess of money over real output. This implication is related to the concept of cointegration discussed in Granger (1986), which states...