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CAN (AND SHOULD) MONETARY POLICY PURSUE A ZERO REAL INTEREST RATE, PERMANENTLY?
Author(s) -
Aspromourgos Tony
Publication year - 2011
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/j.1467-999x.2011.04133.x
Subject(s) - economics , monetary policy , normative , speculation , interest rate , inflation (cosmology) , monetary economics , keynesian economics , macroeconomics , political science , law , physics , theoretical physics
In the final chapter of the General Theory Keynes raises the possibility of instituting a permanent policy of very low interest rates, as part of his response to the deficiencies of mature capitalism. This paper examines the grounds for such a policy, in terms of both descriptive theory and normative principles. It then appraises the practicability of the policy in relation to three obstacles: the consequent need for an alternative policy instrument for targeting inflation; the possibility that cheap money might be a potent encouragement to speculation; and the constraints imposed on monetary policy choices by globally integrated financial markets.