Macroeconomic policy implications: rethinking the role of interest rates

.

Chapter 8 in The Cost of Living Crisis, 2024, pp 157-183 from Edward Elgar Publishing

Abstract: Central banks are using interest rate hikes to curb inflation and claim that the inflation rate has come down as a result of this policy. In reality, interest rate policy is not an appropriate or effective anti-inflationary tool, particularly when inflation is caused primarily by cost-push and profit-push factors. The claim that the crisis is under control because the inflation rate is going down in response to higher interest rates is false for two reasons. The first is that the decline in inflation is natural following a one-off shock, and has nothing to do with interest rates. The second reason is that a declining inflation rate does not mean a containment of the crisis, because as long as the price level rises, real incomes decline and consumers find it increasingly more difficult to pay for what they need. Interest rate policy is inadequate to curb inflation, and it is indeed inflationary because interest payments represent a cost of production.

Keywords: Economics and Finance; Politics and Public Policy (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.elgaronline.com/doi/10.4337/9781035338238.00013 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 503 Service Temporarily Unavailable

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:elg:eechap:23534_8

Ordering information: This item can be ordered from
http://www.e-elgar.com

Access Statistics for this chapter

More chapters in Chapters from Edward Elgar Publishing
Bibliographic data for series maintained by Darrel McCalla ().