Knut Wicksell's Theory of Money, Interest Rate, and Inflation

Knut Wicksell&s;s theory of money, interest rates, and price stability is dealt with and theoretically contrasted with the current monetary controversy as represented by the neo-Wicksellian rendition of the Swedish economist&s;s system. Wicksell argued that the natural rate of interest is the centre of gravity that governs monetary interest rates, equates saving and investment, and regulates commodity prices. It is shown in this chapter that the neo-Wicksellian approach is at variance with Wicksell&s;s own monetary theory. Additionally, Wicksell&s;s hypothesis that the natural rate of interest equilibrates savings and investment is empirically assessed in the case of a set of inflation-targeting Latin American countries.