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Labor's Capital, Business Confidence, And the Market for Loanable Funds


  • James L. Medoff
  • Ronald W. Sellers


The market for loanable funds provides a useful framework for determining changes in investment and interest rates. In the United States, a significant source of supply originates from labor in the form of pension assets. However, despite the increased contribution by labor to the supply curve over the past several decades, levels of investment have remained less than robust. Here, we highlight the changes in the demand curve for loanable funds in order to explain the empirical trends. Data series provided by the Conference Board capture the confidence of U. S. business and thus provide a gauge of Keynes’ “animal spirits”—an essential factor in the demand curve shifts. Correlation of the data series with both quarterly changes in real interest rates and quarterly changes in payroll employment offers documentation for these macroeconomic claims.

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  • James L. Medoff & Ronald W. Sellers, 2004. "Labor's Capital, Business Confidence, And the Market for Loanable Funds," Harvard Institute of Economic Research Working Papers 2042, Harvard - Institute of Economic Research.
  • Handle: RePEc:fth:harver:2042

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