According to the Phillip curve, we know that there is a relationship between unemployment and wages. Is there any literature or paper evaluating the relationship between CB Interest Rate and Inflation?
Thank you!
Dear Nurbek,
Yes the CB interest rate will do have impact on inflation. But it will also impact economic growth and employment. The bivariate model may be expanded.
Dr. Mishra, thank you for your answer! How will CB IR impact employment?
Hi Nurbek,
Indeed there is, which is best captured by John Taylor back in 1992. Basically, Taylor argues that the level of interest rates are a function of the inflation and the spare capacity in the economy.
The below link has the original publication but there are different versions of the model that take into account different sets of variables.
https://web.stanford.edu/~johntayl/Papers/Discretion.PDF
You can consult the works of the new keynesian economics on the NKPC.
- Badges
- Science topic
- Similar topics
- Social Psychology
- Attitude