Interest rate hikes could lead to unpredictable inflation swings, study finds.
The article presents a model that shows how changes in interest rates can affect long-term inflation. It considers factors like firms' debt levels, banks' risk assessments, and inflation. The model suggests that the stability of capital accumulation is linked to inflation stability. When interest rates go up, long-term inflation can either increase or decrease, depending on how prices respond to changes in wages and interest payments. This research provides insights into how inflation-targeting policies can influence prices over time.