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Limits to Arbitrage and Interest Rates: a Debate Between Keynes, Hawtrey and Hicks

2018

International audience; This paper deals with a debate between Hawtrey, Hicks and Keynes concerning the capacity of the central bank to influence the short-term and the long-term rates of interest. Both Hawtrey and Keynes considered the central bank’s ability to influence short-term rates of interest. However, they do not put the same emphasis on the study of the long-term rates of interest. According to Keynes, long-term rates are influenced by future expected short-term rates (1930, 1936), whereas for Hawtrey (1932, 1937, 1938), long-term rates are more dependent on the business cycle. Short-term rates do not have much effect on long-term rates according to Hawtrey. In 1939, Hicks enters …

short-term rate of interestarbitragesmonetary policybanksJEL: B - History of Economic Thought Methodology and Heterodox Approachesinstability of creditJEL : B - History of Economic Thought Methodology and Heterodox Approachespreferred habitat[ SHS.ECO ] Humanities and Social Sciences/Economies and financesdiscretionary policiesE58JEL : E - Macroeconomics and Monetary Economics/E.E4 - Money and Interest Rates/E.E4.E43 - Interest Rates: Determination Term Structure and Effects[SHS.ECO] Humanities and Social Sciences/Economics and FinanceE52central bankprofessional dealersbills[SHS.ECO]Humanities and Social Sciences/Economics and Financeconvertibilitylong-dated assetsmoneyprofessional dealers JEL Codes: B22JEL: E - Macroeconomics and Monetary Economics/E.E4 - Money and Interest Rates/E.E4.E43 - Interest Rates: Determination Term Structure and Effectsdiscount rate of interestE43expectations
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