by In his blog, John Cochrane registers disagreement with Larry Summers and reiterates his own argument that in a liquidity trap, interest rate policy does not have a liquidity effect and thus, only a long-run “expected inflation” or “Fisher” effect: When the liquidity effect is absent, the expected inflation effect is all that remains. Inflation must follow interest rates.
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Dirk Niepelt considers the following as important: Fisher equation, inflation, inflation expectations, Interest Rate, Liquidity effect, Liquidity trap, Notes
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In his blog, John Cochrane registers disagreement with Larry Summers and reiterates his own argument that in a liquidity trap, interest rate policy does not have a liquidity effect and thus, only a long-run “expected inflation” or “Fisher” effect:
When the liquidity effect is absent, the expected inflation effect is all that remains. Inflation must follow interest rates.