The adverse supply-side effects of high interest rates and procyclical real wage movements
AbstractDespite widespread recognition that high interest rates may cause price increases through their influence on costs, this point has not been incorporated into simple aggregative macro models. We suggest a way of modifying the simple macro model to incorporate this effect, and by using reasonable parameter estimates, conclude that the supply side seems at least as responsive as the demand side to changes in real interest rates. An additional advantage of the amendment suggested in this note is that it is able to explain both procyclical and countercyclical movements in real wages.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 7 (1985)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/inca/622617
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- Paschakis, John & Smithin, John, 1998. "Exchange Risk and the Supply-Side Effects of Real Interest Rate Changes," Journal of Macroeconomics, Elsevier, vol. 20(4), pages 703-720, October.
- Malik, Hamza, 2005. "Price Level vs. Nominal Income Targeting: Aggregate Demand Shocks and the Cost Channel of Monetary Policy Transmission," MPRA Paper 456, University Library of Munich, Germany, revised Aug 2006.
- Myatt, Anthony & Scarth, William M., 2003. "Is policy perversity consistent with Keynesian business cycles?," Journal of Macroeconomics, Elsevier, vol. 25(3), pages 351-365, September.
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