Monetary Policy and Income Distribution: Some Reflections on the Pasinetti Rule
Enrico Sergio Levrero and
Antonino Lofaro
Review of Political Economy, 2025, vol. 37, issue 3, 867-886
Abstract:
The resurgence of inflation post-COVID-19 prompted a significant response from central banks in major advanced economies, in line with the Taylor rule in the New Consensus model. However, post-Keynesian economists have criticised these conventional policies and proposed alternative monetary rules, collectively referred to as the ‘parking-it’ approach. Notably, the Pasinetti rule—rooted in the concept of a ‘fair’ interest rate—has garnered increasing attention. This paper seeks to explain the derivation of the fair interest rate in Pasinetti’s natural system and emphasise the restrictive assumptions that underlie it. In particular, the study pursues three primary objectives: (i) investigate the applicability of Pasinetti’s conclusions to contemporary central banking practices; (ii) analyse the macroeconomic and distributive implications of adopting the Pasinetti rule; and (iii) propose alternative strategies for conducting monetary policy that extend beyond the Taylor rule framework.
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:taf:revpoe:v:37:y:2025:i:3:p:867-886
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DOI: 10.1080/09538259.2025.2458132
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