| Mario
Seccareccia
“Interest rates, interest spreads and monetary
circulation: theoretical framework and empirical implications
for macroeconomic performance”
The object of my research will be to explore an important
aspect of Augusto Graziani’s (1987, 1990) canonical
model of the monetary circuit, pertaining to the role
of interest rates. Unlike neoclassical theorists who envisage
interest rate determination as the result of the forces
of “productivity and thrift” and who assume
that interest rate movements to be negatively related
to economic activity via their impact on the demand for
funds, the framework of the monetary circuit allows one
to understand the conventional nature of the level of
interest rates and to explore the possible manifold macroeconomic
effects of changes in interest rates and interest spreads.
This is because interest rates play a critical role on
both the “flux” and the “reflux”
sides of monetary circulation, with ramifications, therefore,
on both the flow of “initial” and “final”
finance. After exploring the various avenues by which
interest rates impact on monetary circulation, there will
be an attempt at empirical verification of some of the
key relations that will be established. For instance,
it is well known that changes in interest rates can impact
on both the level and composition of aggregate demand
in ways not suggested by traditional neoclassical theory.
Moreover, some empirical studies have shown that bank
interest spreads are useful leading indicators of business
cycle activity. The purpose of the paper will be to explore
these monetary phenomena within the very fruitful framework
of the monetary circuit. |
