On the Separation between Prices and Quantities. A Note on the Interest Rate as an Artifact of Self-Validating Beliefs

Ariel Dvoskin () and Emiliano Libman ()
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Ariel Dvoskin: CONICET – University of San Martín, EIDAES
Emiliano Libman: CONICET – Center for the Study of State and Society

No CSWP68, Centro Sraffa Working Papers from Centro di Ricerche e Documentazione "Piero Sraffa"

Abstract: Following Aspromourgos’ (2007) steps, in this paper we examine the role of the interest rate as a “conventional” variable under different assumptions regarding price and quanti-ty determination, that aim to characterize the reaction functions of Central Banks, repre-sented in standard New Consensus models. More specifically, we lay out a minimal model and suggest a taxonomy that helps examining under which conditions prices and quantities can be determined independently of each other, and whether there is or there is not a unique natural rate of interest consistent with the equilibrium level of output. We argue that the natural rate of interest need not exist even if, as the New Consensus ar-gues, we allow prices and quantities to be somehow connected.

Keywords: Inflation Targeting; Interest Rates; Monetary Theory of Distribution; New Consensus Model (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2024-09-26
New Economics Papers: this item is included in nep-ban, nep-cba, nep-hme and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ris:sraffa:0068

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