Edited by Louis-Philippe Rochon and Sergio Rossi
Chapter 12: Interest rate determination and endogenous money
The debate between the horizontalist and structuralist wings of the post-Keynesian school was about the need to reconcile the notions of endogenous money, central-bank interest-rate operating procedures, and the intuitive idea, from Keynes, that liquidity preference also matters for the determination of interest rates. This chapter argues that all of these things are entirely compatible. However, it is important to recognize that the most important point at issue is about the determination of real interest rates, not just nominal interest rates. If the central bank can target the real policy rate of interest, then it will certainly also have much influence over the real interest rates actually paid by borrowers, including firms making investments.
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