Acta Oeconomica Pragensia 2017, 2017(2):70-84 | DOI: 10.18267/j.aop.575

Real Interest Rate Channel from the Point of View of Chosen Theories of Investment

Lukáš Kučera
Vysoká škola ekonomická v Praze, Fakulta financí a účetnictví (kucera-lukas@email.cz).

This paper is a theoretical one and deals with the real interest rate channel of monetary policy and sensitivity of investment to real interest rate. In the first part, the mechanism of the real interest rate channel is analysed. The second part focuses on the neoclassical model of demand for capital, Fisher's theory of investment, Tobin's q and Keynes's investment theory. All these theories are discussed in the context of real interest rate, i.e., whether they consider that investment reacts inversely to changes of real interest rate. The third part of the paper targets application of theories to the framework of the real interest rate channel. The paper concludes that all the mentioned theories of investment imply that investment reacts inversely and permanently to changes of real interest rate and also that central banks may influence investment via all types of real interest rate, i.e., short and long or market and retail real interest rate.

Keywords: nominal interest rate, real interest rate, demand for capital, internal rate of return, Tobin's q, marginal efficiency of capital
JEL classification: E22, E43, E52

Published: April 4, 2017  Show citation

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Kučera, L. (2017). Real Interest Rate Channel from the Point of View of Chosen Theories of Investment. Acta Oeconomica Pragensia, 25(2), 70-84. doi: 10.18267/j.aop.575
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