Monetary policy

Edwin Dickens edickens at DREW.EDU
Thu Jun 29 13:53:40 PDT 2000


Brad De Long wrote:
>
> >>
> >> 1) Start at an interest rate of 5% per year.
> >
> >
> >Why?
>
> This is a description of a rule of thumb that describes Fed behavior.
> I don't know why.
>

Isn't it a problem that your explanation of Greespan's Fed has a theoretically unjustified point of departure?


> > >
> >>there are
> >> theoretical reasons to think that the "equilibrium real interest
> >> rate" should increase with increases in the rate of profit.
> >
> >What are they?
> >
>
> That if the interest rate is permanently below the rate of return on
> capital, investment will boom until the marginal product of capital
> drops, growth slows, and the rate of return on capital falls...

I'm sure you know that many heterodox economists argue that the concept of capital as a "thing" with a marginal product is logically inconsistent. Therefore, it makes no sense to us to evaluate the level of interest rates set by the Fed in terms of a natural rate derived from such a concept. We derive explanations of monetary policy instead from the concept of capital as a social relationship.

Edwin (Tom) Dickens



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