Abstract
The article revisits the IS-LM macroeconomic model by incorporating speculation into the investment function. The discussion is supported empirically by using data from the G7 countries to examine the different interest rate regimes in the pre- and post-2008 financial crisis. The estimation of an “anchor” interest rate provides a reference rate for the G7 countries. The empirical study is extended to examine if the three quantitative easing episodes in the US economy are effective. The paper concludes that the maintenance of a high and stable interest rate policy is needed for sustainable growth in the G7 countries.
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