THE CUMULATIVE PRICE PROCESS IN A PURE CREDIT SYSTEM: WICKSELL'S APPROACH

Códigos JEL: E31, E32, E40, E51

Abstract

The aim of this essay is to examine the Wicksellian analysis of monetary equilibrium. Wicksell, says that in economy there are two different interest rates and the interest rate parity depends on the monetary equilibrium. First, we have the natural interest rate, which is defined in terms of the capital productivity. Secondly, the monetary interest rate, which is set by the monetary authority, Central Bank, and it corresponds to the rate at which credits are offered. In this model, the economic imbalances are the result of a monetary disturbance caused by intervention of the Central Bank, that modifying the interest rate of the loans, generates an imbalance in these rates, which gives origin to the inflationary process.