Unformatted text preview: Bond Market Equilibrium Interest Rates Market for Money: LPF Equilibrium Interest Rates in LPF If we look at changes in money growth, than Fisher eﬀect is
permanent. Fisher eﬀect persists only as long as the price level continues
to rise. A rising price level will raise interest rates because people will
expect inﬂation to be higher over the course of the year.
When the price level stops rising, expectations of inﬂation will
return to zero. Price-level eﬀect remains even after prices have stopped rising. A one time increase in the money supply will cause prices to
rise to a permanently higher level by the end of the year. The
interest rate will rise via the increased prices. Price-Level Eﬀect and Fisher Eﬀect Asset Demand ...
View Full Document