Skip Navigation



Cambridge Journal of Economics Advance Access published online on February 27, 2008
Cambridge Journal of Economics, doi:10.1093/cje/ben004
This Article
Right arrow Full Text
Right arrow Full Text (PDF)
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Arestis, P.
Right arrow Articles by Sawyer, M.
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

© The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

A critical reconsideration of the foundations of monetary policy in the new consensus macroeconomics framework

Philip Arestis and Malcolm Sawyer*

* University of Cambridge, UK, and University of Leeds, UK, respectively

Address for correspondence: Economics Division, Leeds University Business School, The University of Leeds, Leeds LS2 9JT, UK; email: mcs{at}lubs.leeds.ac.uk

Monetary policy has become firmly based on the use of interest rate as the key policy instrument, and in a one instrument–one target framework. The approach to monetary policy is closely associated with the new consensus in macroeconomics (NCM). This paper undertakes a critical appraisal of the role of monetary policy in the context of the NCM. After setting out the main features of the NCM, there is critical discussion of the role of monetary policy and the NCM framework. The discussion covers the nature of the loss function, the role of the ‘natural rate of interest’ and the Phillips' curve. This is followed by a critical evaluation of the IS curve in the NCM and the classical dichotomy. The paper finishes by asking whether interest rates do have the effects claimed for them.

Key Words: monetary policy • interest rates • new consensus in macroeconomics

JEL classifications: E10, E4, E52

Manuscript received February 26, 2007; final version received December 17, 2007.


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?




Disclaimer:
Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.