Keynes Dynamic ISLM versus Taylors Rule
Published: 2018
Author(s) Name: Satya Prasad Padhi |
Author(s) Affiliation: Professor, Department of Economics, Panjab University, Chandigarh
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Abstract
The present paper suggests that
the logic of ISLM, as understood
by Keynes, permits a dynamic
version of it. The latter can illustrate
a short run that can capture
growth prospect facing it.
This understanding shows that
growth prospects define the monetary
prospects that in turn determine
the rate of interest, as a
monetary phenomenon. The comovement
of interest rate and
prices is a response to growth
prospects, and the former plays
the signaling device to indicate
the growth prospects facing the
current period. The broader conclusion
is monetary policy should
play a passive role and align the
rate of interest to actual growth
prospects; the policy focus is on
the management of the growth
prospects.
Keywords: N.A.
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