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On the Separation between Prices and Quantities. A Note on the Interest Rate as an Artifact of Self-Validating Beliefs

Author

Listed:
  • Dvoskin, Ariel

    (CONICET – University of San Martín, EIDAES)

  • Libman, Emiliano

    (CONICET – Center for the Study of State and Society)

Abstract

Following Aspromourgos’ (2007) steps, in this paper we examine the role of the interest rate as a “conventional” variable under different assumptions regarding price and quanti-ty determination, that aim to characterize the reaction functions of Central Banks, repre-sented in standard New Consensus models. More specifically, we lay out a minimal model and suggest a taxonomy that helps examining under which conditions prices and quantities can be determined independently of each other, and whether there is or there is not a unique natural rate of interest consistent with the equilibrium level of output. We argue that the natural rate of interest need not exist even if, as the New Consensus ar-gues, we allow prices and quantities to be somehow connected.

Suggested Citation

  • Dvoskin, Ariel & Libman, Emiliano, 2024. "On the Separation between Prices and Quantities. A Note on the Interest Rate as an Artifact of Self-Validating Beliefs," Centro Sraffa Working Papers CSWP68, Centro di Ricerche e Documentazione "Piero Sraffa".
    • Handle: RePEc:ris:sraffa:0068
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    More about this item

    Keywords

    Inflation Targeting; Interest Rates; Monetary Theory of Distribution; New Consensus Model;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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