tag:blogger.com,1999:blog-8595404115121834255.post7657253555652643770..comments2024-03-28T03:24:05.678-04:00Comments on NAKED KEYNESIANISM: Dr. Krugman and the natural rate of interestMatias Vernengohttp://www.blogger.com/profile/09521604894748538215noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-8595404115121834255.post-69626135871052020482011-07-04T09:50:05.749-04:002011-07-04T09:50:05.749-04:00Yes, his normal argument (still imperfectionist) i...Yes, his normal argument (still imperfectionist) is the negative interest rate (and that could be said to be more Keynesian than Keynes, in the sense that Keynes did have the neutral rate). But Keynes at least was trying to get rid of his old ways. Krugman here seems to be going in the wrong direction. More Wicksellian, less Keynesian. That's why I thought this post was so strange. Mind you Krugman suffers, in my view, from the eclecticism of modern mainstream economics. He can make more than one argument in favor of his views, and they might not be coherent among them. More on that on my last post.Matias Vernengohttps://www.blogger.com/profile/09521604894748538215noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-3896254040984779232011-07-01T10:51:06.796-04:002011-07-01T10:51:06.796-04:00If there is a rate that would produce recovery and...If there is a rate that would produce recovery and it is a very negative real rate, then it is the same "normal" argument. Moreover, you admit that in his "normal argument" is talking about a negative natural real interest rate.<br />Therefore "normally" his argument is more "Keynesian" than that of Keynes who believed in a positive real "neutral" rate that would bring investment into equality with full employment savings (see keynes critique of Hobson in the GT for instance).FRANKLIN SERRANOhttps://www.blogger.com/profile/16347487254288239722noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-66389150295953441492011-07-01T08:41:25.618-04:002011-07-01T08:41:25.618-04:00Not sure that this is the case. Krugman tends to ...Not sure that this is the case. Krugman tends to be ecclectic, using different arguments according to convenience, which are not necessarily coherent between them. It is true that his normal argument is based on a downward rigidty of the nominal interest rate, associated to the zero lower bound, and that the I=S rate would be negative. However, nothing in this post suggest that. He says that creditors would spend more, and even if it is consumption, through the accelerator investment would increase. The quote is quite precise, there is a rate that would produce recovery.Matias Vernengohttps://www.blogger.com/profile/09521604894748538215noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-23966761776149606152011-06-30T10:50:16.919-04:002011-06-30T10:50:16.919-04:00Dear Matias
Krugman´s lack of clarity seems to ha...Dear Matias<br /><br />Krugman´s lack of clarity seems to have misled you. In his post I am sure he means that there is a real rate of interest that would generate enough effective demand but his point is that it is so NEGATIVE that it is difficult to get enough inflation to get there (see the remarks on the IS being steep and the IS graph in his Cambridge talk). His argument seems to go through the possible effect of a negative rate of interest in consumption and housing and not only businesss investment. Therefore it does not need an interest elastic investment function. It looks much more like Lerner, Eisner and Duesenberry for it is an argument about a negative real natural rate of interest. It has nothing to do with Wicksell natural or Keynes neutral rate that were both positive and relied on the interest elasticity of business non residential investment. It is Krugman´s fault however to have confused you because of his difficulty with basic things (like his annoying habit of calling "liquidity trap", which is a flat LM , when he is talking about "elasticity pessimism" , which is nearly vertical IS).FRANKLIN SERRANOhttps://www.blogger.com/profile/16347487254288239722noreply@blogger.com