4.4 Interest rates and monetary policy Finally, considerations related to interest rates have not been given much prominence but are of great importance. The proposition that higher debt levels will push up interest rates is examined for each of the episodes examined in the first half of the twentieth century (Table 4.4.1 and Figure 4.4.2). The figures in the table decisively rebut any notion that higher debt levels are associated with higher interest (the correlation coefficient over this period is –0.2). Over these years it became understood that the long-‐term rate could be brought under the control of the authorities, whatever the planned extent of government expenditure. While that control was rapidly abandoned after the war, low real interest rates prevailed throughout the duration of the ‘golden age’ (as shown in Table 3I.4). Table 4.4.1: Interest rates and public debt ratios ______________________________
Average Average debt / Interest GDP rate ________ _________ 1909-‐13 30 3.2 1913-‐18 65 4.1 1918-‐23 154 4.8 1923-‐31 168 4.5 1931-‐33 180 3.6 1933-‐39 158 3.2 1939-‐44 153 3.1 1944-‐47 243 2.8 _____________________________
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