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The adverse supply-side effects of high interest rates and procyclical real wage movements

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  • Myatt, Anthony

Abstract

Despite widespread recognition that high interest rates may cause price increases through their influence on costs, this point has not been incorporated into simple aggregative macro models. We suggest a way of modifying the simple macro model to incorporate this effect, and by using reasonable parameter estimates, conclude that the supply side seems at least as responsive as the demand side to changes in real interest rates. An additional advantage of the amendment suggested in this note is that it is able to explain both procyclical and countercyclical movements in real wages.

Suggested Citation

  • Myatt, Anthony, 1985. "The adverse supply-side effects of high interest rates and procyclical real wage movements," Journal of Macroeconomics, Elsevier, vol. 7(2), pages 237-246.
    • Handle: RePEc:eee:jmacro:v:7:y:1985:i:2:p:237-246
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    Cited by:

    1. Malik, Hamza, 2005. "Price Level vs. Nominal Income Targeting: Aggregate Demand Shocks and the Cost Channel of Monetary Policy Transmission," MPRA Paper 456, University Library of Munich, Germany, revised Aug 2006.
    2. Paschakis, John & Smithin, John, 1998. "Exchange Risk and the Supply-Side Effects of Real Interest Rate Changes," Journal of Macroeconomics, Elsevier, vol. 20(4), pages 703-720, October.
    3. Paraskevopoulos, Christos C. & Paschakis, John & Smithin, John, 1996. "Is monetary sovereignty an option for the small open economy?," The North American Journal of Economics and Finance, Elsevier, vol. 7(1), pages 5-18.
    4. Anthony E. Myatt & Gregory Young, 1986. "Interest Rates and Inflation: Uncertainty Cushions, Threshold and "Patman" Effects," Eastern Economic Journal, Eastern Economic Association, vol. 12(2), pages 103-114, Apr-Jun.
    5. Myatt, Anthony & Scarth, William M., 2003. "Is policy perversity consistent with Keynesian business cycles?," Journal of Macroeconomics, Elsevier, vol. 25(3), pages 351-365, September.

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