Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153312
Authors: 
Hagedorn, Marcus
Year of Publication: 
2008
Series/Report no.: 
ECB Working Paper 878
Abstract: 
Central bankers’ conventional wisdom suggests that nominal interest rates should be raised to implement a lower inflation target. In contrast, I show that the standard New Keynesian monetary model predicts that nominal interest rates should be decreased to attain this goal. Real interest rates, however, are virtually unchanged. These results also hold in recent vintages of New Keynesian models with sticky wages, price and wage indexation and habit formation in consumption.
Subjects: 
Disinflation
nominal and real interest rates
optimal monetary policy
JEL: 
E41
E43
E51
E52
Document Type: 
Working Paper

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