The Interest Rate and Capital Durability, and the Importance of Methodological Pluralism

Roder van Arkel and Koen Vermeylen
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Roder van Arkel: Research Institute, Social Trade Organisation, Utrecht, The Netherlands
Koen Vermeylen: University of Amsterdam

No 13-202/VI, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Champions of sustainable growth often call for more durable production technologies with less capital depreciation. As investment in more durable capital is encouraged by lower interest rates, we investigate whether policy makers can steer the economy towards a path with low interest rates in order to stimulate more durable capital formation. We study this question from the viewpoint of two different macroeconomic paradigms, with three different modeling strategies, and get three fundamentally different and even contradicting answers. As none of these paradigms can claim to be superior to the other one, we argue that all modeling strategies may yield valuable insights, which leads to nuanced and careful policy advice. The paper is therefore an illustration of the importance of methodological pluralism in addressing macro-environmental questions where the interest rat e takes center stage.

Keywords: interest rate; capital durability; depreciation rate; sustainability; methodological pluralism (search for similar items in EconPapers)
JEL-codes: B4 E22 E43 O44 Q5 (search for similar items in EconPapers)
Date: 2013-12-16
New Economics Papers: this item is included in nep-env and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20130202

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