Séminaire GREDEG : Pierrick CLERC (EHC Liège)

Title : Michael Woodford's Interest and Prices After Twenty Years

Abstract: The present paper reflects about Michael Woodford’s 2003 Interest & Prices, 20 years after its publication. The paper stresses its role (i) in the transition from a ‘neo-monetarist’ towards a ‘neo-Wicksellian’ framework within the New Keynesian - DSGE paradigm; (ii) in the widespread use of the concept of a ‘natural rate of interest’, especially by economists working in central banks; and (iii) in providing a general method for deriving a ‘utility-based’ welfare criteria consistent with the models used to determine the optimal monetary policy. Importantly, the paper points out that Woodford actually pursued a different, and much less recognized, objective: promoting a new, and ‘rule-based’, approach to inflation targeting. The paper finally discusses some aspects of his concern with financial stability after the 2008 crisis.

Keywords: Woodford, Interest & Prices, Neo-Wicksellian, Inflation Targeting, Natural Rate of Interest
JEL Classification: E31, E58, B22

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