{
  "title": "Inflation, Nominal Interest Rates, and the Variability of Output",
  "publication": "IMF Working Papers, October 1, 1996",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/inflation-nominal-interest-rates-and-the-variability-of-output-2081",
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  "summary": "This paper examines the distribution of output around capacity when money demand is a nonlinear function of the nominal interest rate such that nominal interest rates cannot become negative.",
  "sections": [
    {
      "heading": "Summary and central result",
      "content": "- This paper examines the distribution of output around capacity when money demand is a nonlinear function of the nominal interest rate such that nominal interest rates cannot become negative.\n- Key comparative-statics findings:\n  - When fluctuations in output result primarily from disturbances to the money market, the variance of output is an increasing function of the trend inflation rate.\n  - When fluctuations in output result primarily from disturbances to the goods market, the variance of output is a decreasing function of the trend inflation rate.\n  - When both disturbances are significant, there exists, in general, a critical non-zero trend inflation rate that minimizes the variance of output."
    },
    {
      "heading": "Analytical framework and mechanisms",
      "content": "- Money demand specification:\n  - Money demand is modeled as a nonlinear function of the nominal interest rate, with the property that nominal interest rates cannot become negative.\n- Channels emphasized:\n  - Money-market disturbances: amplify output variance as trend inflation rises.\n  - Goods-market disturbances: reduce output variance as trend inflation rises.\n  - Interaction of both disturbance types: generates a non-monotonic relationship between trend inflation and output variance, implying an interior optimal trend inflation rate that minimizes output variability."
    },
    {
      "heading": "Subjects and keywords (as listed)",
      "content": "- Subject: Capacity utilization, Demand for money, Financial services, Inflation, Monetary base, Money, Prices, Production, Real interest rates\n- Keywords: Capacity utilization, Demand for money, Inflation, inflation rate rise, long-run inflation rate influence, Monetary base, money demand function, nominal interest rate, price level, rate of inflation, Real interest rates, shock term, trend inflation rate, WP\n\n---\n\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/inflation-nominal-interest-rates-and-the-variability-of-output-2081"
    }
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    "Authors: Bankim Chadha, Daniel Tsiddon",
    "Published: October 1, 1996",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451853162.001",
    "This paper examines the distribution of output around capacity when money demand is a nonlinear function of the nominal interest rate such that nominal interest rates cannot become negative.",
    "Key comparative-statics findings:",
    "Money demand specification:",
    "Channels emphasized:",
    "Subject: Capacity utilization, Demand for money, Financial services, Inflation, Monetary base, Money, Prices, Production, Real interest rates",
    "Keywords: Capacity utilization, Demand for money, Inflation, inflation rate rise, long-run inflation rate influence, Monetary base, money demand function, nominal interest rate, price level, rate of inflation, Real interest rates, shock term, trend inflation rate, WP"
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