Re: Interest Rates, Inflation, Exchange Rates and Credit inBull And Bear Ma... (fwd)

["Alan G. Isaac" <aisaac@xxxxxxxxxxxx>]

Forwarded for Barkley.
For some reason pkt msgs no
longer go out with pkt in
either the From or Reply-To
fields, so one generally cannot
just hit the Reply button.
Alan

---------- Forwarded message ----------
From: "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>
To: Alan G. Isaac <aisaac@xxxxxxxxxxxx>
Subject: Re: Interest Rates, Inflation,
     Exchange Rates and Credit inBull And   Bear  Ma...

     I think I'll pop my needle into this thread,
especially given that it has been marked by
a lot of heat on both sides.
     One way to look at this (that may annoy some
on the list) is to think about it in broad aggregate
supply and aggregate demand terms (I realize
that "classic" Keynes-Weintraub-Davidson-Smolensky
AS-AD analysis has no price level in it, although Keynes
implicitly had it in his discussion in Chap. 21 of the GT).
This allows us to distinguish cost-push from demand-pull
inflation. Thus, higher interest rates tend to push inflationary
pressure up from the supply-cost-push side while
they tend to reduce inflationary pressure from the
demand-pull side.  The mechanism for the latter does
not rely on denying money endogeneity, just to keep Basil
happy.  It is a matter of the downward-sloping marginal
efficiency of investment schedule---higher interest rates
reduce the demand for real capital investment and thus
aggregate demand.
      Which is more important in a given situation or time
horizon is an empirical matter.  Clearly, most central
banks believe that at least in the short run the demand
side tends to outweigh the supply side and that thus
they can fight inflation by raising interest rates.  Randy
Wray however remains correct that in the long run if
the central bank imposes and enforces and maintains
a 20% interest rate, that eventually inflation will have to
be near that level.  But, such a long run will come after
a very bad recession, possibly depression, in which
maybe not all of us will be dead, but a lot of people will be.
Barkley Rosser
-----Original Message-----
From: Alan G. Isaac <aisaac@xxxxxxxxxxxx>
To: Gunnar Tomasson <tomasson@xxxxxxxx>
Cc: POST KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
Date: Tuesday, December 05, 2000 10:57 AM
Subject: Re: Interest Rates, Inflation, Exchange Rates and Credit inBull And
Bear Ma...

> On Mon, 4 Dec 2000, Gunnar Tomasson wrote:
>> My "basic economic intuition" advises that there exist no a priori ground
s
>> for supposing that entrepreneurs are less likely to raise output prices
in
>> response to higher interest costs than they are when faced with higher
labor
>> costs per unit output.

> Of course.
> You appear to have missed much
> of this thread.
> http://csf.colorado.edu/mail/pkt/2000/msg02390.html

> Alan