Friday, July 1, 2016

Mark Thornton on the Natural Interest Rate in the WSJ

My friend and former professor, Mark Thornton, has a letter to the editor published in the Wall Street Journal commenting on the importance of the natural rate of interest for business cycle theory. He notes that all the FED needs to do to foster discovery of the natural rate of interest is to cease manipulating the money supply and, hence, the interest rate. Thornton writes:
The Fed cannot “see” the natural rate of interest, but it is right before its eyes. You can achieve the natural rate by simply not increasing the money supply and withdrawing from interest-rate manipulation altogether.

Mark Thornton is now a Senior Fellow at the Ludwig von Mises Institute. He is one of the leading contemporary scholars in Austrian economics.

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