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| Title: | | Gibson's paradox, monetary policy, and the emergence of cycles  |
| Authors: | | Hannsgen, Greg |
| Issue Date: | | 2004 |
| Series/Report no.: | | Working papers // The Levy Economics Institute 410 |
| Abstract: | | Many empirical studies have found that interest rate have a positive effect on the price level. This paper pursues an obvious, but neglected explanation: interest payments are a cost of production that is at least in part passed on to costumers. A model shows that the cost-push effect of inflation, long known as Gibson's paradox, intensifies destabilizing forces and can be involved in the generation of cycles. An empirical investigation finds that the positive association of interest rates with inflation or the log of the price level is present in data from the 1950s to present. |
| Subjects: | | Gibson's Paradox Inflation Monetary Policy Rules Nonlinear Dynamics |
| JEL: | | C22 E11 E12 E32 E52 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Working Papers, Levy Economics Institute of Bard College
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