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Real Interest Rates, Intertemporal Prices and Macroeconomic Stabilization A Journey Through the History of Economic Thought

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Abstract

The notion of a "real rate of interest" has been a centre of confusion in the history of economic thought. In neoclassical economics, real interest rates were designed as relative prices of contemporary and future goods and Böhm-Bawerk believed that misalignments were corrected by market forces, restoring the allocation of saving and investment as well as macroeconomic equilibrium. The intertemporal perspective in goods market analysis was modified in Wicksell and Keynes; the focus shifted to financial markets. According to the new Keynesian theory, monetary policy should be used to support intertemporal consumption smoothing. Because investment is neglected, this approach is unable to grasp the intertemporal coordination problem and delivers poor microfoundations for macroeconomic stabilization.

Suggested Citation

  • Peter Spahn, 2007. "Real Interest Rates, Intertemporal Prices and Macroeconomic Stabilization A Journey Through the History of Economic Thought," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 292/2007, Department of Economics, University of Hohenheim, Germany.
    • Handle: RePEc:hoh:hohdip:292
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    More about this item

    Keywords

    Zinsspannentheorie; Neukeynesianische Makroökonomik; Realzins;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • B1 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925

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