IDEAS home Printed from
   My bibliography  Save this article

Interest rates and inflation: What are the links?


  • Malcolm Sawyer

    (University of Leeds)


The purpose is to examine some of the links in the chain which is said to run from the rate of interest to the rate of inflation. It is argued that that there is a tendency to slip from arguments which that the rate of interest is related to the price level to suggesting that the rate of interest is related to the rate of inflation. The neo-Wicksellian approach is examined and found to support more the view that the rate of interest impacts the level of prices rather than the rate of inflation. It is also argued that the route through the exchange rate does not support the view that higher interest rates will dampen down inflation (though it may lower prices relative to what they would have been). It is further argued that the link from the level of economic activity to the rate of infl ation is theoretically dubious. In the last section it is briefly indicated that there is a lack of empirical support for any strong link from interest rate to inflation.

Suggested Citation

  • Malcolm Sawyer, 2009. "Interest rates and inflation: What are the links?," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 6(1), pages 81-96.
  • Handle: RePEc:elg:ejeepi:v:6:y:2009:i:1:p:81-96

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Lavoie, Marc, 1995. "The Kaleckian Model of Growth and Distribution and Its Neo-Ricardian and Neo-Marxian Critiques," Cambridge Journal of Economics, Oxford University Press, vol. 19(6), pages 789-818, December.
    2. Claudio H. Dos Santos & Gennaro Zezza, 2007. "A Simplified 'Benchmark” Stock-flow Consistent (SFC) Post-Keynesian Growth Model," Economics Working Paper Archive wp_503, Levy Economics Institute.
    3. Eckhard Hein & Till van Treeck, 2007. "'Financialisation' in Kaleckian/Post-Kaleckian models of distribution and growth," IMK Working Paper 07-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. Peter Flaschel & Peter Skott, 2006. "Steindlian Models Of Growth And Stagnation," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 303-338, July.
    5. Thomas I. Palley, 2007. "Financialization: What It Is and Why It Matters," Working Papers wp153, Political Economy Research Institute, University of Massachusetts at Amherst.
    6. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, vol. 14(4), pages 375-393, December.
    7. Engelbert Stockhammer, 2004. "Financialisation and the slowdown of accumulation," Cambridge Journal of Economics, Oxford University Press, vol. 28(5), pages 719-741, September.
    8. Till van Treeck, 2009. "A synthetic, stock--flow consistent macroeconomic model of 'financialisation'," Cambridge Journal of Economics, Oxford University Press, vol. 33(3), pages 467-493, May.
    9. Skott, Peter, 2005. "Fairness as a source of hysteresis in employment and relative wages," Journal of Economic Behavior & Organization, Elsevier, vol. 57(3), pages 305-331, July.
    10. Dutt, Amitava Krishna, 1992. "Conflict inflation, distribution, cyclical accumulation and crises," European Journal of Political Economy, Elsevier, vol. 8(4), pages 579-597, December.
    11. Taylor, Lance, 1985. "A Stagnationist Model of Economic Growth," Cambridge Journal of Economics, Oxford University Press, vol. 9(4), pages 383-403, December.
    12. Peter Skott & Soon Ryoo, 2008. "Macroeconomic implications of financialisation," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 827-862, November.
    13. Dutt, Amitava Krishna, 1984. "Stagnation, Income Distribution and Monopoly Power," Cambridge Journal of Economics, Oxford University Press, vol. 8(1), pages 25-40, March.
    14. Skott,Peter, 2008. "Conflict and Effective Demand in Economic Growth," Cambridge Books, Cambridge University Press, number 9780521066310, March.
    15. Engelbert Stockhammer, 2006. "Shareholder value orientation and the investment-profit puzzle," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 28(2), pages 193-215, January.
    16. Skott, P., 1990. "Efficiency Wages, Mark-up Pricing and Effective Demand," Discussion Paper 1990-26, Tilburg University, Center for Economic Research.
    17. Skott, Peter, 1981. "On the 'Kaldorian' Saving Function," Kyklos, Wiley Blackwell, vol. 34(4), pages 563-581.
    18. Skott, Peter, 1989. "Effective Demand, Class Struggle and Cyclical Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 231-247, February.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Philip Arestis & Malcolm Sawyer, 2010. "What Monetary Policy after the Crisis?," Review of Political Economy, Taylor & Francis Journals, vol. 22(4), pages 499-515.
    2. Philip Arestis & Malcolm Sawyer, 2013. "Moving from Inflation Targeting to Prices and Incomes Policy," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(1), pages 1-17, March.

    More about this item


    interest rates; infl ation; monetary policy;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • 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


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:elg:ejeepi:v:6:y:2009:i:1:p:81-96. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katie Smith). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.