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Title:The rate of interest as a macroeconomic distribution parameter: Horizontalism and Post-Keynesian models of distribution of growth PDF Logo
Authors:Hein, Eckhard
Issue Date:2010
Series/Report no.:Working Paper, Institute for International Political Economy Berlin 07/2010
Abstract:We review the main arguments put forward against the horizontalist view of endogenous credit and money and an exogenous rate of interest under the control of monetary policies. We argue that the structuralist arguments put forward in favour of an endogenously increasing interest rate when investment and economic activity are rising, due to increasing indebtedness of the firm sector or decreasing liquidity in the commercial bank sector, raise major doubts from a macroeconomic perspective. This is shown by means of examining the effect of increasing capital accumulation on the debt-capital ratio of the firm sector in a simple Kaleckian distribution and growth model. In particular we show that rising (falling) capital accumulation may be associated with a falling (rising) debt-capital ratio for the economy as a whole and hence with the 'paradox of debt'. Therefore, the treatment of the rate of interest as an exogenous macroeconomic distribution parameter in Post-Keynesian distribution and growth models seems to be well founded.
Subjects:interest rate
horizontalism
distribution
debt
capital accumulation
JEL:E12
E25
E43
E52
Document Type:Working Paper
Appears in Collections:IPE Working Papers, Institute for International Political Economy, HWR Berlin

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