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(1/P)] whereas the ubiquitous conventional Fisher equation (CFE) uses expected goods inflation [percent change in E … non-rationality leveled against the CFE. The puzzling substitution of inflation for expected money appreciation in Fisher …
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This paper examines the implications of inflation persistence for the inverted Fisher hypothesis that nominal interest … rates do not adjust to inflation because of a high degree of substitutability between money and bonds. It is emphasized that … the substitutability between nominal assets and capital renders the hypothesis inconsistent with the data when inflation …
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affects the relation between nominal interest rates, inflation expectations, and real interest rates. The benchmark parameters … include stronger inflation targeting and more active monetary policy …
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