The rate of interest as a macroeconomic distribution parameter: Horizontalism and Post-Keynesian models of distribution of growth

Eckhard Hein

MPRA Paper from University Library of Munich, Germany

Abstract: We review the main arguments put forward against the horizontalist view of endogenous credit and money and an exogenous rate of interest under the control of monetary policies. We argue that the structuralist arguments put forward in favour of an endogenously increasing interest rate when investment and economic activity are rising, due to increasing indebtedness of the firm sector or decreasing liquidity in the commercial bank sector, raise major doubts from a macroeconomic perspective. This is shown by means of examining the effect of increasing capital accumulation on the debt-capital ratio of the firm sector in a simple Kaleckian distribution and growth model. In particular we show that rising (falling) capital accumulation may be associated with a falling (rising) debt-capital ratio for the economy as a whole and hence with the ‘paradox of debt’. Therefore, the treatment of the rate of interest as an exogenous macroeconomic distribution parameter in Post-Keynesian distribution and growth models seems to be well founded.

Keywords: interest rate; horizontalism; distribution; debt; capital accumulation (search for similar items in EconPapers)
JEL-codes: E12 E25 E43 E51 (search for similar items in EconPapers)
Date: 2010-06
New Economics Papers: this item is included in nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: The rate of interest as a macroeconomic distribution parameter: Horizontalism and Post-Keynesian models of distribution of growth (2010)
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