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Rethinking monetary policy

In: A Modern Guide to Rethinking Economics

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  • Louis- Philippe Rochon

Abstract

Mainstream monetary theory rests on two arguments: inflation is determined by demand, and interest rates are used to return inflation to its target: central banks are the guardians of inflation. However, for post-Keynesians, inflation cannot be caused by demand, and there exists a poor and unreliable relationship between interest rates and aggregate demand. The whole theoretical edifice of the neoclassical approach collapses. Therefore, if monetary policy is based on a wrong interpretation of inflation and the link between aggregate demand and interest rates, the result can be and has been catastrophic. It leads to periods of crisis in aggregate demand.

Suggested Citation

  • Louis- Philippe Rochon, 2017. "Rethinking monetary policy," Chapters, in: Louis-Philippe Rochon & Sergio Rossi (ed.), A Modern Guide to Rethinking Economics, chapter 11, pages 199-216, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:16503_11
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    Keywords

    Economics and Finance;

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