Euro zone: We will end up believing the neo-Fisherians

The more interest rates fall and are expected to fall in the euro zone, the lower inflation and expected inflation will be in the zone, which is the complete opposite of what the ECB believes it will obtain by cutting interest rates. This relationship corresponds exactly to neo-Fisherian theory. While the real interest rate is given in the long term by the technical characteristics of the economy, in the long term it is nominal interest rates that determine inflation and expected inflation. If this theory is correct, it is the ECB’s actions that are driv ing down inflation, and euro-zone inflation will become much lower.