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This paper examines the implications of inflation persistence for the inverted Fisher hypothesis that nominal interest rates do not adjust to inflation because of a high degree of substitutability between money and bonds. It is emphasized that the substitutability between nominal assets and capital renders the hypothesis inconsistent with the data when inflation persistence is high. Using a switching regression model, the analysis allows the reflection of inflation in interest rates to vary according to the degree of inflation persistence or forecastability. The hypothesis is supported by U.S. data only when inflation forecastability is below a certain threshold.

Banks and Banking --- Inflation --- Macroeconomics --- Taxation --- Model Construction and Estimation --- Interest Rates: Determination, Term Structure, and Effects --- Price Level --- Deflation --- Taxation, Subsidies, and Revenue: General --- Public finance & taxation --- Finance --- Marginal effective tax rate --- Inflation persistence --- Consumer price indexes --- Real interest rates --- Prices --- Tax policy --- Financial services --- Tax administration and procedure --- Price indexes --- Interest rates --- United States

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The paper provides a selective survey of methods and findings concerning the impact of tax and welfare policies on employment, unemployment, and economic growth in OECD countries. The paper examines a number of facets of tax and welfare policy and concludes that cross-country macroeconomic studies shed only limited light on the issue. Analyses of household behavior using microeconometric methods are much more fruitful but the question remains of how to aggregate these results to assess the overall impact of policy.

Labor --- Macroeconomics --- Taxation --- Wages, Compensation, and Labor Costs: General --- Labor Economics: General --- Demand and Supply of Labor: General --- Taxation, Subsidies, and Revenue: General --- Personal Income and Other Nonbusiness Taxes and Subsidies --- Aggregate Factor Income Distribution --- Labour --- income economics --- Public finance & taxation --- Welfare & benefit systems --- Wages --- Labor supply --- Marginal effective tax rate --- Labor taxes --- Tax policy --- Income --- National accounts --- Labor economics --- Labor market --- Tax administration and procedure --- Income tax --- United Kingdom