RE: Isaac/Wray/Berglund & interest rates

["John Legge" <jlegge@xxxxxxx>]

Greg hit a number of nails squarely on the head in his post.  Raising interest
rates rebalances the economy in favour of those earning interest income, and
cost shocks generally will have different impacts on different sectors.

There is one particular inflationary consequence omitted by Greg.  High
interest rates deter investment in high capital intensity industries and
increase the monopoly power and in due course prices of established firms and
product lines.  Pricing in HCI industries rises linearly with nominal demand
(reinforcing inflation) but is moderated by new product investment rates.
High interest rate policies may be very stagflationary in capital-intensive
economies.

John M. Legge
Email: jlegge@xxxxxxx
Fax:: +613 9899 5668