Must-read: George W. Evans and Bruce McGough: Interest Rate Pegs in New Keynesian Models

Must-Read: Barrel. Fish. Gun:

George W. Evans and Bruce McGough: Interest Rate Pegs in New Keynesian Models: “John Cochrane asks: Do higher interest rates raise or lower inflation?’…

…We find that pegging the interest rate at a higher level will induce instability and most likely lead to falling inflation and output over time. Eventually, this will precipitate a change of policy…