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Alternative Theories of the Rate of Interest

L. Randall Wray

Cambridge Journal of Economics, 1992, vol. 16, issue 1, 69-89

Abstract: This article develops a general framework for the analysis of alternative theories concerning the determination of interest rates. The framework extends Kenneth Boulding's asset approach in which Keynesian liquidity preference theory is interpreted as a theory of asset valuation. A model of asset price determination is used to examine neoclassical, monetarist, portfolio balance, and horizontal theories of interest rates. Finally, the article uses the framework to reconcile liquidity preference theory with an endogenous money approach. It is argued that endogenous money, liquidity preference, and the expenditure multiplier are the three essential and interrelated principles of the Keynesian approach. Copyright 1992 by Oxford University Press.

Date: 1992
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Handle: RePEc:oup:cambje:v:16:y:1992:i:1:p:69-89