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Savings and investmentsâan old debate in times of trouble

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  • Johann Graf Lambsdorff

Abstract

Central banks are widely regarded as being capable of controlling the interest rate. From this perspective, the classical viewpoint on savings and investments is criticized for assuming that the interest rate equilibrates the two but credited for observing that investments are not indeterminate. Keynes correctly stated that any level of investment generates the necessary savings. This is what I label the "IS-logic," which is shown to hold under more general assumptions. But the IS-logic does not recognize the limitations imposed by a considerate central bank. These insights are applied to the 2007-8 financial crisis to generate insights for reform.

Suggested Citation

  • Johann Graf Lambsdorff, 2011. "Savings and investmentsâan old debate in times of trouble," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 33(4), pages 645-666, July.
    • Handle: RePEc:mes:postke:v:33:y:2011:i:4:p:645-666
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