Acknowledgments
This paper was presented at the History of Economics Society meeting at Toronto in June 2004.
Notes
1Unless stated otherwise, citations of (2003, pp. xx) refer to Woodford's Interest and Prices.
2These concepts are not, of course, exclusively Wicksellian; but all of them had (at least some of) their origins in the works of Wicksell and his early followers.
3For further discussion of different concepts of the pure credit economy see Hicks (Citation1989, chapter 12), Trautwein Citation(1997), Boianovsky Citation(1998), and Boianovsky and Erreygers Citation(2005).
4In this respect, Woodford's approach differs strongly from the literature on the recent “Credit View” in which Ben Bernanke, Marc Gertler, and others have stressed the modifying influences of the bank-lending and balance-sheet channels on monetary policy transmission. For a comparison of this Credit View with the Wicksellian view see Trautwein Citation(2000).
5The only exception would be a corresponding change in the preference for money. Other assets would no longer be perfect substitutes and the model would have “monetary frictions.” Woodford (2000, p. 68) implicitly introduces a liquidity premium on money by way of the condition that it ≥ im t. This serves to define the intertemporal budget constraint for the household by excluding the finance of unlimited consumption. The cashless economy represents thus the limiting case it = im t , because the other assets are perfect substitutes for money.
6Simplified in log-linear terms, the equilibrium real rate of interest is equal to the equilibrium nominal rate of interest minus expected inflation.
7A similar argument has been made by McCallum Citation(1986), but was criticized by Howitt Citation(1992) for failing to take account of the learning processes required for convergence on rational expectations.
8With regard to this passage, Woodford's claim that “Wicksell does not discuss endogenous inflation expectations” (2003, p. 46 n. 40) does not appear to be quite correct. For a more detailed discussion of Wicksell's views on the role of expectations see Boianovsky and Trautwein Citation(2001).
9It is not clear why Woodford includes “equilibrium” in the definitions. Unlike Wicksell and the older Wicksellians, he does not present his examination of changes in inflation and output in terms of disequilibrium analysis. He also seems to avoid the use of the notion of multiple equilibria.
10Woodford (Citation2003, pp. 411–16) discusses the case of a “mildly inefficient natural rate of output,” but relates the inefficiencies only to monopolistic market power and distorting taxation. Moreover, as pointed out by Walsh Citation(2005), in the more general case when a cost shock is added the inflation equation, the zero interest rate gap may not be the optimal policy.
11The simplifying assumption that “while all sectors purchase investment goods from the same suppliers (i.e., that the investment goods used by the different sectors are perfect substitutes for their producers), these goods cease to be substitutable once they have been purchased” (2003, p. 354) may create an irreversibility of investment, but cannot capture the mismatch problems between capital goods and consumption goods industries discussed by Hayek Citation(1929) and Lindahl Citation(1930).
12The index has one entry for “neutral rate of interest” which refers to discussions in the U.S. Monetary Policy Committee.