Archive

Interview with Charles A.E. Goodhart

Gerd Grözinger:
Achtung Lebensgefahr! Indirekte Effekte regionaler Arbeitslosigkeit auf Lebensweise und -qualität

Special Forum on »Global imbalances«

Sebastian Dullien:
Divergences in EMU: Scope of the problem and policy options

Dorothee Bohle:
East European capitalism – What went wrong?

Hansjörg Herr:
Global imbalances and the Chinese balance of payments

Dimitri B. Papadimitriou:
Global imbalances: Strategic prospects for the US and the world

Special Issue on »Inflation targeting: Is there a credible alternative?«

Editorial to the Special Issue

Angel Asensio, Mark Hayes:
The Post Keynesian alternative to inflation targeting

Malcolm Sawyer:
Interest rates and inflation: What are the links?

Geoff Tily:
The General Theory and monetary policy: Investment versus inflation

Ronald Schettkat, Jochem Langkau (Hg.):
Aufschwung für Deutschland. Plädoyer international renommierter Ökonomen für eine bessere Wirtschaftspolitik
(Achim Truger)

Alessandro Roncaglia, Paolo Sylos Labini:
Geschichte des ökonomischen Denkens. Eine kurze Einführung
(Hagen Krämer)

Luigi L. Pasinetti:
Keynes and the Cambridge Keynesians. A ›Revolution in Economics‹ to be Accomplished
(Eckhard Hein)

Alessandro Vercelli:
Methodological Foundations of Macroeconomics: Keynes and Lucas
(John E. King)

John T. Harvey, Robert F. Garnett (eds.):
Future Directions for Heterodox Economics
(Wolfram Elsner).

Sergio Rossi:
Money and Payments in Theory and Practice
(Eckhard Hein)

Steven Mark Cohn:
Reintroducing Macroeconomics: A critical Approach
(Bernd Berghuber)

The Post Keynesian alternative to inflation targeting

Angel Asensio and Mark Hayes

While mainstream policies may be beyond improvement in the enchanted ›optimizable‹ world, Post Keynesians have to manage without a magic wand in our uncertain world. We discuss the alternative policies proposed in the recent Post Keynesian literature and argue that control of interest rates is too imperfect for such policies to be feasible in general, although they provide useful guidelines and may be successful in favourable circumstances. Consequently, the question of credibility is irrelevant, if this means whether policy-makers will honour their commitment to an unfeasible ideal target. The right question is whether policy is convincing enough to make the conventional state of expectation (and the related interest rate) consistent with full employment. It is all a matter of confidence. The basic principles involved in such an approach to monetary policy are discussed.

JEL classifications: E12, E52

Keywords: interest rate rule, convention, uncertainty, monetary policy

Interest rates and inflation: What are the links?

Malcolm Sawyer

The purpose is to examine some of the links in the chain which is said to run from the rate of interest to the rate of inflation. It is argued that that there is a tendency to slip from arguments which that the rate of interest is related to the price level to suggesting that the rate of interest is related to the rate of inflation. The neo-Wicksellian approach is examined and found to support more the view that the rate of interest impacts the level of prices rather than the rate of inflation. It is also argued that the route through the exchange rate does not support the view that higher interest rates will dampen down inflation (though it may lower prices relative to what they would have been). It is further argued that the link from the level of economic activity to the rate of inflation is theoretically dubious. In the last section it is briefly indicated that there is a lack of empirical support for any strong link from interest rate to inflation.

JEL classifications: E31, E40, E43, E52

Keywords: interest rates, inflation, monetary policy

The General Theory and monetary policy: Investment versus inflation

Geoff Tily

Keynes’s theory of investment and the economic cycle is set out. Against this theory it is argued that the current monetary policy framework is not credible. Rather, given its implicit endorsement of financial liberalisation, it is, and has proved, deeply dangerous. Keynes advocated policies aimed at setting a low long-term rate of interest. Financial liberalisation has led to the dear rates that Keynes understood as the cause of the Great Depression. The discussion also examines Keynes’s vigilant approach to inflation and argues that the inflation of the 1970s was connected with liberalisation not Keynes. The loss of the central role for investment and the pre-occupation with inflation in post-Keynesian economics is traced. Finally events from the golden age to the present debt-deflation are examined according to this perspective.

JEL classification: B22, B50, E40, E60

Keywords: monetary policy, financial liberalisation, investment, inflation, debt deflation