Martin Uribe on Terminology - Dictionary of Arguments
Uribe I 4
Terminology/Uribe: Def Fisher-Effect/Uribe: A large body of empirical and theoretical studies argue that a transitory positive disturbance in the nominal interest rate causes a transitory increase in the real interest rate, which in turn depresses aggregate demand and inflation (…) (see, for example,
Christiano, Eichenbaum, and Evans, 2005)(1). Similarly, a property of virtually all modern models studied in monetary economics is that a transitory increase in the nominal interest rate has no effect on inflation in the long run. By contrast, if the increase in the nominal interest rate is permanent, sooner or later, inflation will have to increase by roughly the same magnitude, if the real interest rate, given by the difference between the nominal rate and expected inflation, is not determined by nominal factors in the long run, entry. This one-to-one long-run relationship between nominal rates and inflation is known as the Fisher effect.
Def Neo-Fisher Effect/Uribe: The neo-Fisher effect says that a permanent increase in the nominal interest rate causes an increase in inflation not only in the long run but also in the short run.
The Fisher effect, however, does not provide a prediction of when inflation should be
expected to catch up with a permanent increase in the nominal interest rate. It only states that it must eventually do so.
Empirical model: The empirical model aims to capture the dynamics of three macroeconomic indicators (…).
1. The logarithm of real output per capita: yt
2. The inflation rate: πt, expressed in percent per year
3. The nominal interest rate: it, expressed in percent per year
[Uribe] assume[s] that yt, πt, and it are driven by four exogenous shocks: a nonstationary (or permanent) monetary shock (X m/t), a stationary (or transitory) monetary shock (z m/t), a nonstationary nonmonetary shock (X n/t) and a stationary nonmonetary shock (z n/t).
[Uribe] estimate[s] the empirical model on quarterly U.S. data spanning the period 1954: Q3 to 2018: Q2. The proxy for yt is the logarithm of real GDP seasonally adjusted in chained dollars of 2012 minus the logarithm of the civilian non-institutional population 16 years old or older. The proxy for πt is the growth rate of the implicit GDP deflator expressed in percent per year. In turn, the implicit GDP deflator is constructed as the ratio of GDP in current dollars and real GDP both seasonally adjusted. The proxy for it is the monthly Federal Funds Effective rate converted to quarterly frequency by averaging and expressed in percent per year.
1. Christiano, Lawrence J., Martin Eichenbaum, and Charles L. Evans, “Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy,” Journal of Political Economy 113, 2005, 1-45.
Martín Uribe (2019): The Neo-Fisher Effect: Econometric Evidence from Empirical and Optimizing Models. In: NBER Working Paper No. 25089. _____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. The note [Author1]Vs[Author2] or [Author]Vs[term] is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.
The Neo-Fisher Effect: Econometric Evidence from Empirical and Optimizing Models. NBER Working Paper No. 25089 2019