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A Post Keynesian View of Theories and Causes for High Real Interest Rates

In: Money and Employment

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  • Louise Davidson

Abstract

The doctrine of monetarism had tended to dominate economic discussions regarding inflation and economic policy — even when the facts, since 1980, have shown there is very little correlation between growth in the domestic money supply and consumer price increases. Considerable time and energies are still being expended, and in my view wasted, trying unsuccessfully to provide a cogent policy analysis of real world problems in the face of the popularity of unhelpful monetarist concepts. The concept of the ‘real rate of interest’ is an excellent case in point. Accordingly, if we are to have a useful discussion regarding why ‘real’ interest rates internationally have risen so dramatically since 1979, we must first clarify the theoretical meaning of the real rate of interest. For until we get our ‘theory’ right, it is impossible to get a good diagnosis of real world ‘facts’, the problems implicit in these ‘facts’, and possible policy actions.

Suggested Citation

  • Louise Davidson, 1990. "A Post Keynesian View of Theories and Causes for High Real Interest Rates," Palgrave Macmillan Books, in: Louise Davidson (ed.), Money and Employment, chapter 23, pages 342-364, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-11513-6_24
    DOI: 10.1007/978-1-349-11513-6_24
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