Interest Rates and Inflation: Knives Out

Interest Rates and Inflation: Knives Out
Fix, Blair. (2023). Economics from the Top Down. 19 February. pp. 1-29. (Article - Magazine; English).

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Abstract or Brief Description

If you’re just tuning in, I’ve spent the last few months debunking some common misconceptions about inflation:

Is inflation a uniform increase in prices? No. Inflation is wildly differential.

Is inflation driven by an ‘over-heated’ economy? No. Inflation tends to come with economic stagnation.

Do higher interest rates reduce inflation? No. Higher interest rates are associated with higher inflation.

As expected, the last claim put mainstream economists into war mode. You see, the belief that interest rates down-regulate inflation has come to be sacred. So by scrutinizing this idea with evidence, I was effectively torching an effigy of the pope. (Novelist Cory Doctorow helped fan the flames by writing an incendiary essay about my research.) And so I spent a ‘fun’ week on Twitter being bombarded by econo-scorn.

Now back to science. When I published ‘A Test of Monetary Faith’, I had more evidence in the pipelines — evidence that debunks the idea that interest rates down-regulate inflation. In this post, I’ll wade through the data.

The take-home message is clear: when we look at the World Bank database, there is no evidence that higher interest rates down-regulate inflation. If anything, the evidence suggests that rate hikes make inflation worse.

But before we get to the data, I’ll respond to some of the more cogent criticisms that economist hurled my way.



Publication Type

Article - Magazine


interest rate Inflation monetarism monetary policy


BN International & Global
BN Macro
BN Money & Finance
BN Policy
BN Crisis

Depositing User

Jonathan Nitzan

Date Deposited

21 Feb 2023 08:03

Last Modified

15 Mar 2023 22:04


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