This paper critically re-examines theory and evidence on the relation- ship between interest rates and inflation. It concludes that there is no evidence that interest rates respond to inflation in the way that classical or Keynesian theories suggest, For the period 1860-1940, it does not appear...

This paper develops two models, one involving risk neutrality and the other risk aversion, which suggest that inflation uncertainty affects interest rates. Both models give rise to essentially the same interest rate equation for estimation. Empirical evidence supports the hypothesis that...

Karl Marx set profit to zero to obtain some maximum interest rate and called it profit rate. He further argued that interest rate must be lower than profit rate. That is Marx’s interest rate theory. This paper disproves Marx’s profit rate, and hence his interest rate theory. It also...

Karl Marx (1867) defined profit rate as the upper limit of interest rate, and claimed that actual interest rate must be somewhere below this limit. Detesting the uncertainty, Joan Robinson (1959) simply set interest rate to Marx’s profit rate. This paper disproves Robinson

Building upon the insight that M1 velocity is the permanent component of nominal interest rates - see Benati (2020) - I propose a novel, and straightforward approach to estimating the natural rate of interest, which is conceptually related to Cochrane's (1994a) proposal to estimate the permanent...

We develop a heterogeneous agent, overlapping generations model with nonhomothetic preferences that nests several explanations for the decline in the natural rate of interest (r*) suggested in the literature: demographic change, a slowdown in productivity growth, a rise in income inequality, and...

The neutral real rate of interest (r*) is a key variable for assessing the tightness of monetary policy. The neutral real interest rate has by all accounts fallen substantially over the past three decades, amid slowing productivity growth, an ageing population, increased inequality and increased...

We consider the puzzling behavior of interest rates and inflation in the United States and the United Kingdom between 1879 and 1913. A deflationary regime prior to 1896 was followed by an inflationary one from 1896 until the beginning of World War I; the average inflation rate was 3.8 percentage...

This paper revisits how coexistence of money and bonds can make a society better off. For this purpose, a model is constructed in which payment instruments matter for settling real transactions and savings instruments matter because agents differ in how they discount future utility. Because...

Building upon the insight that M1 velocity is the permanent component of nominal interest rates - see Benati (2020) - I propose a novel, and straightforward approach to estimating the natural rate of interest, which is conceptually related to Cochrane's (1994) proposal to estimate the permanent...

This paper studies the evolution of the natural interest rate in five Southeast Asian countries and considers the effect of economic shocks on the natural interest rate in these countries. The natural interest rate is the interest rate that would prevail in an economy in equilibrium and in the...

The basic puzzle about the so-called Fisher effect, in which movements in short-term interest rates primarily reflect fluctuations in expected inflation, is why a strong Fisher effect occurs only for certain periods but not for others. This paper resolves this puzzle by reexamining the...

Twenty five years after the publication of the second edition, this paper describes and evaluates the Contributions to monetary and macroeconomics made in Don Patinkin's Money, Interest, and Prices (MIP). Its first accomplishment was to settle definitively many issues, such as the valid and...

This paper analyses the effects of open market operations on interest rates in a model in which agents must pay a fixed cost to exchange assets and cash. Asset markets are endogenously segmented in that some agents choose to pay the fixed cost and some do not. When the fixed cost is zero, the...

The paper examines the transmission mechanism of monetary policy in an open economy with and without a binding zero bound on nominal interest rates. In particular, a foolproof way of escaping from a liquidity trap is presented, consisting of a price-level target path, a devaluation of the...

We measure the natural rate of interest of Hong Kong in a flexible VAR model. We find that the natural rate of interest of Hong Kong fell below zero after the SARS shock in 2003 and reached the lowest after the great recession in 2007-2009. Variance decomposition shows that mainland China,...

We jointly estimate the natural rate of interest, the natural rate of unemployment, expected inflation, and potential output for the Euro area, the United States, Sweden, Australia, and the United Kingdom. Particular attention is paid to time-variation in (i) the data-generation process for...

Following the 2000 stockmarket crash, have US interest rates been held too low in relation to their natural level? Most likely, yes. Using a structural neo-Keynesian model, this paper attempts a real-time evaluation of the US monetary policy stance while ensuring consistency between the...

This paper examines the implications of inflation persistence for the inverted Fisher hypothesis that nominal interest rates do not adjust to inflation because of a high degree of substitutability between money and bonds. It is emphasized that the substitutability between nominal assets and...

Keynes‘s first paragraph in his letter of the 9th of November,1936, is the following two lines: “I beg you not to publish. For your argument as it stands is most certainly nonsense.”Anyone who reads this correspondence will soon realize that it was simply impossible for Joan Robinson to...

Evidence on the relationship between unanticipated money and interestrates has been provided by two types of studies. First, several researchers have investigated the relationship using quarterly data. Second, a number of researchers have examined the effect of money announcement surprises on...

We provide a general equilibrium model with optimizing agents to compute the natural rate of interest for the G7 countries over the period 2000 to 2017. The model is solved for the equilibrium natural rate of interest, which is determined by a parsimonious equation that is easily computed from...

This paper estimates the natural interest rate for six small open economies (Australia, Canada, South Korea, Sweden, Switzerland and the U.K.) with a structural New Keynesian model using Bayesian techniques. Our empirical analysis establishes the following four novel findings: First, we show...

We study the relationships between interest and inflation rates using a recursive equation approach that takes into account both Fisher and Wicksell effects. Extending previous work, a state space representation is used to estimate time-varying ex post Fisher and Wicksell equation effects. We...

Samuelson's biological theory of interest rate - that population growth rate and interest rate must be the same - affects many countries, especially in shaping their population and retirement policies. This paper proves that he derives his so-called theorem by many tricks, which are, however, in...

When Choi has rediscovered that Adam Smith had long solved the interest rate mystery, this paper extends the rediscovering to work out some extreme interest rate, like the very high, the very low and even the negative one. This paper also makes interest rate theory international, and corrects...

This paper disproves Fisher's theory that interest rate is time preference. It shows that the two variables are exogenous, and independent of each other. Fisher's theory is at most an assumption, which is however unacceptable, for it must result in a negative saving supply function. This paper...

In this paper, I develop a Marxian model of market for money capital populated by capitalists equipped with equal money capital endowment but with heterogeneous linear production technology. Due to a maximization of return on equity, capitalists with relatively weak technology, yielding profit...

1. Introduction -- 2. The Austrian Theory of Capital -- 3. The Böhm-Bawerkian Theory of Capital and Interest -- 4. The Hayek Triangle -- 5. Impact of the Decrease in Time Preference on the Structure of Production -- 6. Possibility of Eternal Growth and Comparison with the Neoclassical Growth...