The Wicksell Connection, The Quantity Theory and Keynes

David Laidler ()

UWO Department of Economics Working Papers from University of Western Ontario, Department of Economics

Abstract: In the business cycle literature of the inter-war years, the role of the interest rate in coordinating, or failing to co-ordinate, agents' choices about the allocation of resources over time was an important theme, to which Axel Leijonhufvud (1981) gave the name "the Wicksell connection". The theme takes on particular importance in an economy in which such co-ordination failure produces output fluctuations, because it may involve a fundamental inability on the part of market mechanisms to induce the price responses needed to restore full employment once the economy is moved away from it.

Keywords: BUSINESS CYCLES; INTEREST RATE (search for similar items in EconPapers)
JEL-codes: E23 E32 E43 (search for similar items in EconPapers)
Date: 1997
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