Natural Interest Rate and Money Interest Rates

Ulrich van Suntum ()
Additional contact information
Ulrich van Suntum: Center for Applied Research in Economics Münster (CAWM), University of Münster, Am Stadtgraben 9, 48149, Munster, Germany

The Economists' Voice, 2021, vol. 18, issue 1, 47-66

Abstract: The long lasting period of declining interest rates raises the question, whether the latter result from a savings glut, from a money glut, or from both. Moreover, it renewed the old question how the natural interest rate should be sensibly defined, and if it could ever fall below the growth rate, thereby causing dynamic inefficiency. The present article contributes to this debate on a pure theoretical base, leaving the empirical issue for other research. In particular, I briefly discuss Böhm-Bawerk’s three causes for the existence of an interest rate in a private barter economy. I argue that the natural interest rate remains a meaningful concept even in an economy with both a public sector and money. From a welfare economic view, it is also preferable above the so-called golden rule, provided the interest rate does not fall below the growth rate. Although the natural interest rate could well get negative by excess saving in principle, this is normally prevented when durable goods like land or precious metals are available for storing private wealth. On the other hand, issuing credit money tends to push the interest rate below its natural level, even in the long run. In order to prevent this, one could either replace it by neutral helicopter money or return to a gold currency.

Keywords: credit money; dynamic inefficiency; helicopter money; golden rule; negative interest (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/ev-2019-0028 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

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:bpj:evoice:v:18:y:2021:i:1:p:47-66:n:4

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/ev/html

DOI: 10.1515/ev-2019-0028

Access Statistics for this article

The Economists' Voice is currently edited by Michael Cragg, Dwight Jaffee and Joseph Stiglitz

More articles in The Economists' Voice from De Gruyter
Bibliographic data for series maintained by Peter Golla ().