The point of all this is, IF higher inflation is desired (and I am by no means advocating any such policy), THEN why not keep the policy rate low and use "free lunch" fiscal policies as long as inflation remains below target? Why bother experimenting with the Neo-Fisherian prescription of raising the policy rate that's somehow supposed to make people magically expect higher inflation?The post is a just a bit wonkish (equations) but worth reading since this is coming up more.
MacroMania
Is Neo-Fisherism Nuts?
David Andolfatto | Vice President, Federal Reserve Bank of St. Louis
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