Structural Changes in the Rate of Interest and the Rate of Foreign Exchange to Preserve Equilibrium in the Balance of Payments and the Budget Balance (1984)

It follows from this analysis that if the real rate of interest ~- "is kept constant at any given level, the rate of price inflation will be at the constant level a - A., no matter how high or low the level at which the real rate of interest is stabilised. It follows that, provided the real rate is kept constant, any change in that level will be the same for the money rate ~as for the real rate ~ - Jr. It is the real rate of interest which is the true control variable whose effect we wish to examine. But since we are going to assume that it is kept constant at any given level, we can measure variations in the real rate L1(~- Jr) by variations in the level of the money rate L1~.