I create a model where interest rates are rigid, but aggregate prices are flexible. As a result, changes in real interest rates lead to changes to inflation in the opposite direction. I conclude that this is how credit crunches and monetary tightening reduce inflation. I simulate different...

The response of nominal and real interest rates to expected deflation becomes problematic when nominal interest rates fall toward zero while the expected rate of deflation is increasing. As nominal interest rates approach their lower bound, further increases in expected deflation cannot cause...

The infinite-dimensional sticky-information Phillips curve is cast as a finite-dimensional timevarying system of difference equations in order to directly assess determinacy in the model with demand given by the forward-looking IS equation and monetary policy by an interest rate rule. An...

Imposing the natural rate hypothesis (NRH) can dramatically alter the determinacy bounds on monetary policy by closing the output gap in the long run. I show that the hypothesis eliminates any role for the output gap in determinacy and renders the conditions for determinacy identical for all...

Central banks wish to avoid self-fulfilling fluctuations. Monetary rules with a unit response to real rates achieve this under the weakest possible assumptions about the behaviour of households and firms. They are robust to household heterogeneity, hand-to-mouth consumers, non-rational...

We present determinacy bounds on monetary policy in the sticky information model. We find that these bounds are more conservative here when the long run Phillips curve is vertical than in the standard Calvo sticky price New Keynesian model. Specifically, the Taylor principle is now necessary...

This paper reassesses the Fisher effect using German data. It argues that the empirical rejection of the Fisher effect in previous studies, i.e., the finding of nominal interest rates not fully adjusting to changes in inflation, may be attributed to the particular time series behavior of...

This paper introduces the reader into the apparatus behind the popular New Keynesian Phillips (NKPC) curve. It derives several log-linear versions of this curve and recursive formulations of the Calvo-Yun price staggeringmodel that is behind this curve. These formulations can be used for...

We develop a parsimonious New Keynesian macro-finance model with downward nominal rigidities to understand secular and cyclical movements in Treasury bond premia. Downward nominal rigidities create state-dependence in output and inflation dynamics: a higher level of inflation makes prices more...