Own Rates Of Interest Research Articles

Special Forum on Recent Interpretations of Keynes and the General Theory: Contextualising Keynes's Revolution. Review of Michael S. Lawlor's ›The Economics of Keynes in Historical Context‹

First paragraphAs befits the Post-Keynesian perspective of this forum, the books being reviewed here are related to time: Lawlor (2006) deals with antecedents of Keynes’s General Theory; Tily (2007) mainly with what happened to it afterwards. Michael Lawlor has done us an important service, in bringing together in one place the fruit of many years’ work on the origin and evolution of Keynes’s ideas. These ideas are organised into three areas: (1) the economics of employment, (2) speculation (including new work on institutional features: Marshall on the representative firm and joint stock ownership), and (3) ›the shifting equilibrium of a monetary economy‹. The latter category encompasses (a) the theory of money and interest, (b) Sraff aand Hayek on own rates of interest and (c) the essential properties of money. Marshall plays a key role in the story, as is right. Other key figures include Pigou, Hawtrey, and Robertson.

Austrian Business Cycle Theory, Keynes’s General Theory, Soaring Wheat Prices, and Subprime Mortgage Write-Downs

Keynes’s presentation of own rates of interest on wheat and housing is set within Austrian business cycle theory, to show that soaring wheat prices and subprime mortgage writedowns are expected, when a monetary authority holds interest rates too low for too long. From that basis, further interest rate cuts are an unlikely remedy for a recession whose roots lie in a proliferation of credit.

Rise and Decline of the Notion of Own Rate of Interest in Sraffa. (Ascesa e declino della nozione di saggio proprio di interesse in Sraffa)

The notion of commodity rate of interest, introduced by Sraffa in a short review-article published in 1932, is taken up by Keynes a few years later under the label of own rate of interest. The latter expression soon spreads in the literature, eventually replacing Sraffa's original name. At its birth Sraffa's notion, developed within the framework of a stationary equilibrium model of Wicksellian derivation, appears to be a very promising tool of analysis. Sraffa focuses his attention on the phenomenon of the possible multiplicity of the own rates of interest associated with the various commodities produced and traded in a monetary economy, suggesting that such phenomenon ought to be interpreted as a disequilibrium occurrence, originated by the exogenous perturbations to which the economy is continuously subjected. By assuming that the agents correctly expect, and the forward commodity markets perfectly anticipate, the underlying stationary equilibrium prices, Sraffa is able to show that the divergence among the own rates of interest associated with the various commodities can be interpreted as an effective market signal, analogous to the one supposedly provided by the divergence between market and natural prices in classical price theory: such a signal, in fact, would affect producers' decisions, fostering the appropriate changes in the production levels of the various industries and thereby promoting the convergence of the economy towards the given stationary equilibrium. At first sight, Sraffa's analysis seems to foreshadow interesting theoretical developments in the area of expectations formation, equilibration processes, the working of forward and futures commodity markets, and related topics. But such hopes are bound to be disappointed, for Sraffa drops the notion of own rate of interest shortly after its introduction in 1932, subsequently abstaining from any discussion of both that notion and any other related concept in all his later writings. In this paper, after dispelling a certain ambiguity surrounding Sraffa's original definition of the concept of own rate of interest, we shall explain why Sraffa does not proceed along the road deceptively opened by his 1932 article. In particular, we shall single out three different reasons explaining why Sraffa almost immediately gives up any kind of research in that area: first, in the 1932 paper Sraffa's analysis of expectations formation and the functioning of forward markets is not pursued for its own sake, but only with the purpose of making the adjustment process towards the stationary equilibrium of the economy more plausible and robust; secondly, the constant costs (or constant returns) assumption, that Sraffa is forced to make in order to analyse the disequilibrium adjustment process, is an assumption that he will come to disown in his later work; finally, in the 1932 paper the analytical treatment of the notion of own rate of interest is seriously incomplete, for Sraffa is unable (or unwilling) to contrive that sort of futures contract, essentially different from the forward contract actually envisaged therein, that alone would make the notion of own rate of interest applicable to a real (that is, a moneyless) economy, as Sraffa pretends to be able to do. Now, since the required sort of futures contract, which Sraffa neglects, is instead systematically employed in modern general equilibrium theory, of both the Arrow-Debreu and the Incomplete Markets type, the paper also examines the peculiar fate of the notion of own rate of interest in such contemporary theoretical models.

Commodity Rates of Interest and Intertemporal Substitution in Commodity Demand and Consumption

This paper examines the role of commodity own rates of interest in intertemporal analysis of consumer behaviour and presents a disaggregate analysis of intertemporal substitution in commodity demand and consumption. Commodity rates of interest are defined from the Euler equations implied by the intertemporal consumer choice problem. The relationship between commodity own rates and the real interest rate is derived, and the conditions for equality of commodity own rates are discussed. The intertemporal commodity substitution elasticities are characterised using commodity rates of interest, and the intertemporal substitution elasticity of consumption is derived from its constituent commodity demands. Evidence from estimation of the demand system and the consumption function reveals high intertemporal substitution for consumer goods as well as consumption.

Growth and income distribution in a credit-money economy: introducing the banking sector into the linear production model

This paper attempts to incorporate the Post-Keynesian view of the endogenous money supply into the Sraffian linear production model. The framework presented here unifies some key contributions made by Sraffa (the price equations), Kaldor and Kalecki (the endogenous nature of money in the industrial economy and the framework of the institutional theory of income distribution) and Keynes (liquidity preference and the concept of the 'own rates of interest' with its implication for the long-period position). Two different positions in the endogeneity view--the 'accommodationist' and the 'structuralist'--are classified in terms of method of selecting exogenous and endogenous variables. In this way, we hope to show that credit and money can play an essential role--from the demand and-or the supply side--by having a permanent impact on the growth path and the state of income distribution of an economy. Copyright 2002, Oxford University Press.

THE COSTATE VARIABLE IN NATURAL RESOURCE OPTIMAL CONTROL PROBLEMS

ABSTRACT. In this paper we discuss the role of the costate variable (shadow value) for the resource stock in both nonrenewable and renewable resource problems. We separate the information in this variable into a scarcity and a cost effect. The scarcity effect is the portion of the shadow value that is due just to the scarcity of the resource relative to its demand, while the cost effect is a measure of the impact of the marginal unit upon future extraction costs. It is shown that in the nonrenewable resource, mining, problem both can exist simultaneously, but in the renewable resource, fisheries, model the two effects are mutually exclusive. In our analysis of the fisheries model we develop an expression for the time path of the marginal unit of fish stock. We do this using the theorem of Continuous Dependence on Initial Conditions. This result is then used to generate the conclusion that g(x) is the biological own rate of interest, where g(x) is the growth function for the resource stock, x.

Capital Deepening Response and Heterogeneity of Capital Goods

Capital deepening is one of most important concepts in capital theory. In a steady state economy with one kind of capital good, a capital deepening response is defined as case in which per worker capital good stock is a decreasing function of own rate of interest. In terms of usual aggregated neo-classical technology f(k) [Product (capital-labor ratio)], this definition is exemplified; marginal condition f'(k)=rental/product price and rate of return condition the own rate of interest r+rate of depreciation 8=f'(k) lead to fact that dk/ldr = 1 /f(k). This capital deepeninlg riesponse is related to so-called no-par adoxical consumption behavior. When long-run balance relation is imposed so as to maintain k constanit witlh a conistanit rate of populationi growth q, mailntainiable per capita consumption level is designated by,f (k) (g + 5)k = c. Here c is made a function of r and we obtaiin dc/dr = [f'(k) (g + 35)] (dk/dr) = [r g] ( (llf (k)).2 So far so good as long as economy is of aggregated neo-classical type. There is left, however, questioni of defining concept of capital deepening response when we are confronted with a disaggregated economy witlh many heterogeneous capital goods. A slightly generalized definition has been made available by Cambridge approach,3 in which a capital deepening response is defined in terms of change in value of per worker capital goods stock. This definition has an advantage of maintaining parallelism between aggregated economy and disaggregated economy, but it is not suited for clarifying correspondence between capital deepening response and no-paradoxical consumption behavior in a muLltisectoral economy. Burmeister and Dobell [1970] and BuLrmeister and TuLrniovsky [1972] proposed an alternative definition which is not only consistent with conventional concept of capital deepening in one capital good world, but also intimately related to phenomenon of no-paradoxical consumption behavior. Their definition is

Own Rates of Interest

Own Rates of Interest