The Natural Rate of Interest Rule

By Erwin Rosen and Adrian Ravier


Considerable research has been conducted on central bank
monetary policies. Particular attention has been focused on policies that
have the potential to ensure “sound money,” the symptoms of which
are full employment and economic stability. Debate has centered on
employing rule-based strategies to improve the monetary policies of
the Federal Reserve Bank (“the Fed”). This article reviews the Fed’s
performance with particular emphasis on its contribution to the 2008
crisis and then suggests an alternative policy which, had it been in place
would have dampened the most recent boom and bust. This alternative
is the application of a monetary rule that follows Wicksell’s monetary
equilibrium doctrine. Although the proposed rule would not eliminate
short-term price fluctuations, it should create consistent, inflation-free
economic stability, a condition for sustained growth which the U.S. has
not seen since the Fed’s inception.


Adrián Ravier es Doctor en Economía Aplicada por la Universidad Rey Juan Carlos de Madrid, Master en Economía y Administración de Empresas por ESEADE. Es profesor de Economía en la Facultad de Ciencias Económicas y Jurídicas de la Universidad Nacional de La Pampa y profesor de Macroeconomía en la Universidad Francisco Marroquín. Es director de la Maestría en Economía y Ciencias Políticas en ESEADE.

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