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Alternative Theories of the Rate of Interest

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  • Wray, L Randall

Abstract

This article develops a general framework for the analysis of alternative theories concerning the determination of interest rates. The framework extends Kenneth Boulding's asset approach in which Keynesian liquidity preference theory is interpreted as a theory of asset valuation. A model of asset price determination is used to examine neoclassical, monetarist, portfolio balance, and horizontal theories of interest rates. Finally, the article uses the framework to reconcile liquidity preference theory with an endogenous money approach. It is argued that endogenous money, liquidity preference, and the expenditure multiplier are the three essential and interrelated principles of the Keynesian approach. Copyright 1992 by Oxford University Press.

Suggested Citation

  • Wray, L Randall, 1992. "Alternative Theories of the Rate of Interest," Cambridge Journal of Economics, Oxford University Press, vol. 16(1), pages 69-89, March.
  • Handle: RePEc:oup:cambje:v:16:y:1992:i:1:p:69-89
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    8. Searle, John R., 2005. "What is an institution?," Journal of Institutional Economics, Cambridge University Press, vol. 1(01), pages 1-22, June.
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    Citations

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    Cited by:

    1. Marc Lavoie, 2001. "Endogenous Money in a Coherent Stock-Flow Framework," Economics Working Paper Archive wp_325, Levy Economics Institute.
    2. L. Randall Wray, 1998. "Is Keynesianism Institutionalist? An Irreverent Overview of the History of Money from the Beginning of the Beginning to the Present," Macroeconomics 9812006, EconWPA.
    3. Hein, Eckhard, 2010. "The rate of interest as a macroeconomic distribution parameter: Horizontalism and Post-Keynesian models of distribution of growth," MPRA Paper 23372, University Library of Munich, Germany.
    4. Mika Linden, 1995. "Interest rate and inflation expectations in Finland 1987-1994 : a case for the inverted fisher hypothesis," Finnish Economic Papers, Finnish Economic Association, vol. 8(2), pages 108-115, Autumn.
    5. Jorg Bibow, 2005. "Liquidity Preference Theory Revisited: To Ditch or to Build on It?," Economics Working Paper Archive wp_427, Levy Economics Institute.
    6. Gustavo Junca, 2006. "Modelo De Zonas Objetivo Para La Tasa De Interés De Corto Plazo," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID, December.
    7. Joerg Bibow, 2005. "Liquidity Preference Theory Revisited—To Ditch or to Build on It?," Method and Hist of Econ Thought 0508003, EconWPA.
    8. Bellino, Enrico & Nerozzi, Sebastiano, 2013. "Causality and interdependence in Pasinetti's works and in the modern classical approach," MPRA Paper 52179, University Library of Munich, Germany.
    9. Antonio Carlos Macedo e Silva, 2006. "Detalhes Extraviados E Ausências Conspícuas: Do Treatise À General Theory," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 114, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    10. Hein, Eckhard, 1999. "Interest Rates, Income Shares, and Investment in a Kaleckian Model," MPRA Paper 18607, University Library of Munich, Germany.
    11. Mirakhor, Abbas & Krichene, Noureddine, 2009. "The Recent Crisis: Lessons for Islamic Finance," MPRA Paper 56022, University Library of Munich, Germany.
    12. Eckhard Hein, 2014. "Distribution and Growth after Keynes," Books, Edward Elgar Publishing, number 15903, April.
    13. Randall Wray, 1993. "Government Deficits, Liquidity Preference, and Schumpeterian Innovation," Economics Working Paper Archive wp_99, Levy Economics Institute.
    14. Marc Lavoie, 2014. "Post-Keynesian Economics," Books, Edward Elgar Publishing, number 12857, April.

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