What is the relationship between inflation and interest rates in the
long run? (and why?).
In other words, in a vector error correction (VEC) model of inflation,
the long-run coefficient of policy interest rate should be positive or
negative?
Thank you. Any help is appreciated
Tacoma

In the economic "steady state" (i.e. long-run) the inflation rate is
equal to the population growth rate.  This occurs because once an
economy reaches the steady state it has essentially reached full
capacity.  Therefore, markets have reach high levels of efficiency and
the only growth that can (theoretically) occur is population growth,
which will match the interest rate in order to maintain the same level
of capital appreciation.