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Limits to Arbitrage and Interest Rates: a Debate Between Keynes, Hawtrey and Hicks

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  • Lucy Brillant

    (LEDi - Laboratoire d'Economie de Dijon - UB - Université de Bourgogne - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper deals with a debate between Hawtrey, Hicks and Keynes concerning the capacity of the central bank to influence the short-term and the long-term rates of interest. Both Hawtrey and Keynes considered the central bank's ability to influence short-term rates of interest. However, they do not put the same emphasis on the study of the long-term rates of interest. According to Keynes, long-term rates are influenced by future expected short-term rates (1930, 1936), whereas for Hawtrey (1932, 1937, 1938), long-term rates are more dependent on the business cycle. Short-term rates do not have much effect on long-term rates according to Hawtrey. In 1939, Hicks enters the controversy, giving credit to both Hawtrey's and Keynes's theories, and also introducing limits to the operations of arbitrage. He thus presented a nuanced view.

Suggested Citation

  • Lucy Brillant, 2018. "Limits to Arbitrage and Interest Rates: a Debate Between Keynes, Hawtrey and Hicks," Post-Print hal-01696253, HAL.
    • Handle: RePEc:hal:journl:hal-01696253
    Note: View the original document on HAL open archive server: https://u-bourgogne.hal.science/hal-01696253
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    File URL: https://u-bourgogne.hal.science/hal-01696253/document
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    References listed on IDEAS

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    1. Lucy Brillant, 2014. "A reconsideration of the role of forward-market arbitrage in Keynes' and Hicks' theories of the term structure of interest rates," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 21(6), pages 1085-1101, December.
    2. Moggridge, Donald E & Howson, Susan, 1974. "Keynes on Monetary Policy, 1910-1946," Oxford Economic Papers, Oxford University Press, vol. 26(2), pages 226-247, July.
    3. Anonymous, 1936. "Annual Meeting of the Society," Business History Review, Cambridge University Press, vol. 10(3), pages 44-48, June.
    4. Lucy Brillant, 2014. "A Reconsideration of the Role of Forward-Market Arbitrage in Keynes’s and Hicks’s Theories of the Term Structure of Interest Rates," Post-Print hal-01696168, HAL.
    5. Luca Fantacci & Maria Cristina Marcuzzo & Eleonora Sanfilippo, 2014. "A note on the notions of risk-premium and liquidity-premium in Hicks's and Keynes's analyses of the term structure of interest rates," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 21(6), pages 1102-1108, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. BRILLANT, Lucy, 2024. "The origins of yield curve theory: Irving Fisher and John Maynard Keynes," SocArXiv 9hf8z, Center for Open Science.

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    More about this item

    Keywords

    monetary policy; long-dated assets; discount rate of interest; expectations; professional dealers; preferred habitat; arbitrages; central bank; banks; bills; convertibility; discretionary policies; instability of credit; money; short-term rate of interest; professional dealers JEL Codes: B22; E43; E52; E58;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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