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"If the two monopolists are identical in their preferences for borrowing or lending, there will be no borrowing or lending between them, regardless of the rate of interest. The rate of interest is irrelevant; just like any price is irrelevant, for two identical individuals, who can't gain from trade anyway."
Nick, in his recent Mercatus paper, Covid19 & Fed Monetary Policy, Robert Hetzel writes:"...quantity theorists need to explain why monetary stability requires control of money creation even in a monetary regime of interest rate targeting."
From MV=Py, "...In the traditional exposition, money creation arises independently of the other variables and forces changes in dollar expenditures..."
Now, if money changes arise not "independently" but to offset changes in velocity, intereest rate targeting is also irrelevant. If it´s "too high", the fall in velocity will be offset by a rise in money supply, keeping NGDP growth stable...

Nick, this makes total sense to me, but I have a question about this bit: "You just spend less money. Done. But if everyone spends less money, then everyone's money income falls too, so the attempts to save by accumulating money work for each but fail for all."

Since I=S, won't capital hungry investor swoop in, take all of the savings, use them to build a road or a factory or a house or a new technology, and kick start the economy with investment spending?

Marcus: there's the interest rate paid for holding money,rm, and there's the interest rate paid for holding bonds (loans), rb. In my story, rb is irrelevant, because nobody ever borrows or lends (they have identical time preference etc.) But rm matters, because they all hold money. In this case, the central bank is holding the stock of money constant, and raising rm, which increases the demand for money.

Frances: I'm so pleased it all makes sense! There's no investment in the simplest New Keynesian model I'm critiquing here. So actual saving must be zero too. They don't actually succeed in increasing their saving. If we did introduce investment, then if interest rates rise, households would want to lend more to firms to invest, but firms would want to borrow less from households. So actual investment and saving would fall, because you can't force investors to borrow.

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