Money, Relative Prices and the Rate of Interest
In the 1930s, Hayek was the first to point out that monetary policy cannot be used to control simultaneously both the money supply and the rate of interest. As is well known, this piece of wisdom was rediscovered in the post-war years (after some considerable confusion promulgated by the Radcliffe Committee (Report, 1959)). More to the point, Hayek’s insight foreshadowed the famous Monetarist Rule that the increase in the money supply ought to be maintained in line with growth of GNP.1
KeywordsMonetary Policy Money Supply Capital Good Natural Rate Relative Prex
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