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Real Interest Rates, Intertemporal Prices and Macroeconomic Stabilization A Journey Through the History of Economic Thought

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  • Peter Spahn

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Abstract

The notion of a "real rate of interest" has been a centre of confusion in the history of economic thought. In neoclassical economics, real interest rates were designed as relative prices of contemporary and future goods and Böhm-Bawerk believed that misalignments were corrected by market forces, restoring the allocation of saving and investment as well as macroeconomic equilibrium. The intertemporal perspective in goods market analysis was modified in Wicksell and Keynes; the focus shifted to financial markets. According to the new Keynesian theory, monetary policy should be used to support intertemporal consumption smoothing. Because investment is neglected, this approach is unable to grasp the intertemporal coordination problem and delivers poor microfoundations for macroeconomic stabilization.

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Bibliographic Info

Paper provided by Department of Economics, University of Hohenheim, Germany in its series Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim with number 292/2007.

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Length: 24 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:hoh:hohdip:292

Note: Text written in German
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Keywords: Zinsspannentheorie; Neukeynesianische Makroökonomik; Realzins;

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  1. Fernando Alvarez & Robert E. Lucas, Jr. & Warren E. Weber, 2001. "Interest rates and inflation," Working Papers 609, Federal Reserve Bank of Minneapolis.
  2. A. Cohen & G. Harcourt., 2009. "Whatever Happened to the Cambridge Capital Theory Controversies?," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 8.
  3. Carlin, Wendy & Soskice, David, 2005. "Macroeconomics: Imperfections, Institutions, and Policies," OUP Catalogue, Oxford University Press, number 9780198776222.
  4. N. Gregory Mankiw, 2000. "The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment," Harvard Institute of Economic Research Working Papers 1905, Harvard - Institute of Economic Research.
  5. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
  6. Jan A. Kregel, 2000. "Krugman on the Liquidity Trap: Why Inflation Won't Bring Recovery in Japan," Macroeconomics 0004045, EconWPA.
  7. J. A. Kregel, 1980. "Markets and Institutions as Features of a Capitalistic Production System," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 3(1), pages 32-48, October.
  8. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June.
  9. Boianovsky, Mauro & Trautwein, Hans-Michael, 2006. "Wicksell after Woodford," Journal of the History of Economic Thought, Cambridge University Press, vol. 28(02), pages 171-185, June.
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