Economics of Economic Development:Endogeneity of Rate of Interest & Prices

This paper discusses how economic development processes incorporate Keynes’s insight into a monetary production economy and the related analytical tools. Money supply has to be endogenous, in response to demand conditions; though it provides an understanding different from the one underlying the existing post Keynesian thesis. The present paper focuses on a different translation of the liquidity preference-led determination of rate of interest. Higher growth phases, associated with higher growth of endogenous money supply do not have any inflationary bias. Inflationary pressures then should be ascribed to improper development biases i.e. economic development problems. This understanding provides a counternarrative of the Taylor rule; understanding evolutions of real forces for the purpose of understanding the pressures on rate of interest and inflation should be the basic policy focus.