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

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Author Info
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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File URL: http://www.uni-hohenheim.de/RePEc/hoh/papers/292.pdf
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Publisher 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
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Handle: RePEc:hoh:hohdip:292

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Related research
Keywords: Zinsspannentheorie Neukeynesianische Makroökonomik Realzins

Find related papers by JEL classification:
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
B1 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mankiw, N Gregory, 2001. "The Inexorable and Mysterious Tradeoff between Inflation and Unemployment," Economic Journal, Royal Economic Society, vol. 111(471), pages C45-61, May. [Downloadable!] (restricted)
    Other versions:
  2. Jan A. Kregel, 2000. "Krugman on the Liquidity Trap: Why Inflation Won't Bring Recovery in Japan," Macroeconomics 0004045, EconWPA. [Downloadable!]
    Other versions:
  3. Mauro Boianovsky & Hans-Michael Trautwein, 2006. "Wicksell after Woodford," Journal of the History of Economic Thought, Taylor and Francis Journals, vol. 28(2), pages 171-185, June. [Downloadable!] (restricted)
  4. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June. [Downloadable!] (restricted)
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