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Interest rates, income distribution, and monetary policy dominance: Post Keynesians and the "fair rate" of interest

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  • Louis-Philippe Rochon
  • Mark Setterfield

Abstract

>i>In light of the growing interest in "new consensus" models, this paper examines Post Keynesian alternatives to the Taylor rule. It identifies two distinctive approaches to Post Keynesian interest rate policy, which we label the activist and the>/i> parking-it >i>rules. The first approach advocates the use of nominal (or real) interest rates as a tool of aggregate demand fine-tuning, whereas the second approach moves away from reaction functions, claiming that monetary policy has become too dominant in economic discourse. It proposes, instead, an interest rate policy whereby the central bank "parks" the interest rate (real or nominal) according to a specific rule. Three possible parking rules are examined—the Smithin rule, the Kansas City rule, and the Pasinetti fair rate rule. The paper then explores the macroeconomic consequences of a genuine Post Keynesian alternative to new consensus monetary policy along the lines of the fair rate rule.>/i>

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 30 (2007)
Issue (Month): 1 (October)
Pages: 13-42

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Handle: RePEc:mes:postke:v:30:y:2007:i:1:p:13-42

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

Related research

Keywords: income distribution; inflation; interest rates; monetary policy; stabilization policy; unemployment;

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Cited by:
  1. Hein, Eckhard & Schoder, Christian, 2009. "Interest rates, distribution and capital accumulation – A Post-Kaleckian perspective on the US and Germany," MPRA Paper 18223, University Library of Munich, Germany.
  2. Hein, Eckhard & Truger, Achim, 2013. "Future fiscal and debt policies: Germany in the Context of the European Monetary Union," IPE Working Papers 24/2013, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
  3. Eckhard Hein & Achim Truger, 2013. "Fiscal Policy and Rebalancing in the Euro Area: A Critique of the German Debt Brake from a Post-Keynesian Perspective," Economics Working Paper Archive wp_776, Levy Economics Institute.
  4. Hiroshi Nishi, 2012. "Varieties of Economic Growth Regimes, Types of Macroeconomic Policies, and Policy Regime: A Post-Keynesian Analysis," Discussion papers e-12-008, Graduate School of Economics Project Center, Kyoto University.
  5. Hein, Eckhard & Truger, Achim, 2010. "Finance-dominated capitalism in crisis – the case for a Global Keynesian New Deal," MPRA Paper 21175, University Library of Munich, Germany.
  6. repec:hal:wpaper:halshs-00496911 is not listed on IDEAS
  7. Eckhard Hein & Achim Truger, 2008. "Fiscal policy in the macroeconomic policy mix: A Critique of the New Consensus Model and a comparison of macroeconomic policies in France, Germany, the UK and Sweden from a Post-Keynesian perspective," IMK Working Paper 03-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  8. Angel Asensio, 2008. "(Post) Keynesian alternative to inflation targeting," Post-Print halshs-00335560, HAL.
  9. Eckhard Hein & Marc Lavoie & Till van Treeck, 2008. "Some instability puzzles in Kaleckian models of growth and distribution: A critical survey," IMK Working Paper 19-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  10. Eckhard Hein & Achim Truger & Till van Treeck, 2011. "The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective," IMK Working Paper 9-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  11. Jussi Ahokas, 2012. "Geographies of Monetary Economy and the European economic crisis," ERSA conference papers ersa12p437, European Regional Science Association.

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