Discuss the Key Ideas in Neo-Fisherism

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The Answer is Neo-Fisherians argue that central bankers have key ideas about the inflation process wrong.
Conventional central banking wisdom says that inflation decreases when nominal interest rates
increase. This may be true in simple models with fixed inflation expectations, but it is not true in
typical New Keynesian rational expectations models. Neo-Fisherians argue that, when inflation goes
up when nominal interest rates go up the Fisher effect is important for inflation control by central
banks. Why do central bankers have trouble accepting Neo-Fisherian ideas? On this, we can only
speculate. Maybe they lose face from admitting their policies are wrong. Maybe they do not actually
understand how modern macroeconomic models work.

Discuss the Key Ideas in Neo-Fisherism

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Discuss the Key Ideas in Neo-Fisherism

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Correct Answer:
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