Why Money Matters: Wicksell, Keynes and the ‘New Consensus View’ on Monetary Policy

One of the greatest achievements of the modern mainstream approach to monetary policy is to have rejected the old quantity-theoretic framework, and to have replaced it with a Wicksellian two-interest-rate analysis, which closely reflects the actual behavior of central banks around the world. Starting with a presentation of Wicksell’s two-interest-rate analysis and its policy implications, this paper evaluates these recent developments in monetary thought and monetary policy in terms of the acceptance or not of the axiom of neutrality of money and monetary policy.