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On Interest as a Monetary Phenomenon and the ‘Best’ Interest-rate Policy


  • Massimo Pivetti

    (University of Rome La Sapienza)


The article discusses the real effects of interest-rate policy, as well as its impact on inflation, once the traditional concept of a ‘natural’ real rate of interest is discarded and interest is viewed as a monetary phenomenon, a true policy variable subject to a wide range of policy objectives and constraints, which contributes to determine normal production costs. Attention is then focused on the merits of cheap money, whilst it is maintained, by contrast, that a persistent zero real interest-rate policy would ultimately be incompatible with capitalist production. The article concludes by pointing out the implications of the main arguments put forward here for the status of the central bank and the question of capital control.

Suggested Citation

  • Massimo Pivetti, 2019. "On Interest as a Monetary Phenomenon and the ‘Best’ Interest-rate Policy," Bulletin of Political Economy, Bulletin of Political Economy, vol. 13(2), pages 167-187, December.
  • Handle: RePEc:awu:journl:v:13:y:2019:i:2:p:167-187

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    References listed on IDEAS

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    12. Thomas I. Palley, 2019. "The fallacy of the natural rate of interest and zero lower bound economics: why negative interest rates may not remedy Keynesian unemployment," Review of Keynesian Economics, Edward Elgar Publishing, vol. 7(2), pages 151-170, April.
    13. Steven Pressman, 2019. "How low can we go? The limits of monetary policy," Review of Keynesian Economics, Edward Elgar Publishing, vol. 7(2), pages 137-150, April.
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    More about this item


    Monetary policy; rate of interest; normal production costs; rate of profits; inflation; cheap money policy; effects of a zero-interest rate policy;
    All these keywords.

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination


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