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The Debate between Keynes and the “Classics” on Interest Rate Determinants: A Big Waste of Time?

José Luís Oreiro ()

Brazilian Journal of Political Economy, 2000, vol. 20, issue 2, 287-311

Abstract: This article presents the debate between Keynes and the Classics relative tothe determinants of the rate of interest, with the objective of analyze if there is any subjecttheoretically relevant under discussion. We demonstrate that, contrary to what has been saidby many neoclassical scholars like Hicks, there is an important theoretical question beingdiscussed between Keynes and the Classics, that is the mechanism according to which theplans of saving and investment have influence over the rate of interest. For the “Classics”these decisions have immediate influence over the rate of interest, i.e. the immediate impactof variations of saving and investment is over this variable. For Keynes, however, the immediateimpact of these variations will be over the level of income and employment. As a resultof this effect there will be a change in the level of interest rate. This same question reappears on the debate between Asimakopulos, Kregel and Davidson; but in a different context, thatis the consideration of propensity to save as a financial restraint to investment decisions. JEL Classification: E12; E43.

Keywords: Interest rate determination; post-Keynesianism (search for similar items in EconPapers)
Date: 2000
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