Between the cup and the lip
The paper states that, although Post Keynesian interest rules may be feasible and sustainable in favourable circumstances, there is a shared difficulty as for the setting of long-term interest rates in a context of strong uncertainty and shifting liquidity preference. According to Keynes theory of the interest rate, the variation in the long-term interest rate that authorities are seeking for must correspond to the market convention, in order to preserve the state of the confidence and avoid disruptive shifts in the demand for money. It is argued that authorities should therefore announce a long-term interest rate target in accordance with the normative objective the opinion has debated on and agreed with. Also, such a conventional target cannot be very distant from the current rate, and the short-term rates authorities control should be adjusted gradually (but not slowly). Moving the interest rate convention is harder to get in the context of the current crisis, because of the deleterious effects on private and public accounts, and thereby on the state of confidence, that the innumerable amounts of bad debts have carried. We put forward strong arguments in favour of reducing the amount of bad debts by means of temporary large public deficits and accommodating monetary policies (which is not to say permanent large deficits and inflationary policies), even though long-term interest rate do not respond much to the short-term impulses of central banks.
|Date of creation:||May 2009|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00496911|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lavoie, Marc, 1996.
"Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk,"
Scottish Journal of Political Economy,
Scottish Economic Society, vol. 43(3), pages 275-300, August.
- Lavoie, M, 1995. "Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk," Working Papers 9513e, University of Ottawa, Department of Economics.
- Alcino F. Câmara Neto & Matias Vernengo, 2004. "Fiscal policy and the Washington consensus: a Post Keynesian perspective," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 27(2), pages 333-343, December.
- Alcino F. Câmara Neto & Matias Vernengo, 2004. "Fiscal Policy and the Washington Consensus: A Post Keynesian Perspective," Working Paper Series, Department of Economics, University of Utah 2004_09, University of Utah, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:hal:cepnwp:halshs-00496911. 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: (CCSD)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.