Interest and Profit: An Empirical Assessment of the Monetary Theory of Distribution for the Euro Area

Santiago José Gahn

Review of Political Economy, 2024, vol. 36, issue 2, 685-701

Abstract: Several authors, especially those who share a Classical–Keynesian point of view, argue that the interest rate determines the rate of profit in the long run. Considering the eleven founding economies of the euro area, I find that, adjusted for the rate of growth of gross national income, there is a positive long-term relationship between the real interest rate and the net rate of profit. The results are confirmed even when I estimate a model with nominal interest rates, inflation, and a yield curve. These results imply that the European Central Bank (ECB), when deciding monetary policy, is not neutral in determining income distribution.

Date: 2024
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DOI: 10.1080/09538259.2022.2062959

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