Munich Personal RePEc Archive

Could there be a "Sub-market Interest Rate" in the IS-LM Framework?

Kui-Wai, Li (2014): Could there be a "Sub-market Interest Rate" in the IS-LM Framework? Published in: E-axes No. On Monetary Policy and Banking (1. May 2014)

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Abstract

This paper attempts to make a case of “sub-market interest rate” using the IS-LM framework. The argument is that when the market interest rate falls below a certain level, the low cost of borrowing would invite speculative varieties or unproductive investment, which could eventually crowd out productive investment. As such, both monetary policy and fiscal policy may not be effective under certain circumstances.

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