Multiple-Interest-Rate Analysis Sheds Light on the Reswitching Phenomenon
Chapter
Abstract
When two present values are compared, reswitching occurs when one present value is lowest at low interest rates, switches to being more expensive at higher rates, and then reswitches to being cheapest again at yet higher rates. Some economists argue that the reswitching phenomenon undermines neoclassical economics. Multipleinterest- rate analysis applied to the reswitching equation leads to its dual expression. The dual expression sheds new light on the phenomenon.
Keywords
Cambridge capital complex plane controversies interest rate multiple reswitchingPreview
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Notes
- 1.The phrases ‘rate of profit’ and ‘rate of interest,’ and ‘profit rate’ and ‘interest rate,’ are used interchangeably in the reswitching literature.Google Scholar
- 2.Some authors do examine multiple interest rates in the context of the Cambridge capital controversies. For example, Bharadwaj (1970) discusses all roots but arbitrarily excludes the complex solutions on the same grounds as Boulding (1936) and Soper (1959), namely, that they have no economic significance. Bruno et al. (1966) and Hagemann and Kurz (1976) examine the multiple real roots but ignore the complex roots.Google Scholar
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© Michael J. Osborne 2014