We’re looking at real interest rates, though! So the scenario you envision of “5% nominal rates and 25% deflation” would still show up as 30% real rates. So the monetary policy reaction function is really totally irrelevant in this sense.
PS: your 2011 blog post on a related topic has sat in my head for over a decade (“Piecing together optimal monetary policy in the singularity is a side project of mine and though it sounds silly possibly very important”… I am also interested in this topic 😊)
We’re looking at real interest rates, though! So the scenario you envision of “5% nominal rates and 25% deflation” would still show up as 30% real rates. So the monetary policy reaction function is really totally irrelevant in this sense.
PS: your 2011 blog post on a related topic has sat in my head for over a decade (“Piecing together optimal monetary policy in the singularity is a side project of mine and though it sounds silly possibly very important”… I am also interested in this topic 😊)