RISING INTEREST RATES AND COST PUSH INFLATION

IN RECENT YEARS, MUCH RELIANCE HAS BEEN PLACED UPON MONETARY POLICY AS THE MAJOR WEAPON IN THE BATTLE AGAINST INFLATION. IN MARCH 1970 CONGRESSMAN WRIGHT PATMAN POINTED OUT THE SENSELESSNESS OF FIGHTING INFLATION BY RAISING INTEREST-RATES. ALTHOUGH ECONOMISTS DO NOT GENERALLY SUBSCRIBE TO THIS VIEWPOINT, VERY FEW HAVE ADDRESSED THE QUESTION. SECTION 1 DEVELOPS THE THEORETICAL MODEL THAT UNDERLIES THE ECONOMETRIC ANALYSIS USED IN THIS STUDY. A BASIC MARK-UP PRICING MODEL IS DEVELOPED AND RELATED TO INTEREST-RATES AND FINANCIAL COSTS. THE ABILITY TO PASS ALONG THE IMPACT OF INTEREST-RATE CHANGES VIA MARK-UP PRICING IS THEN EXPLORED BY DEVELOPING COST INDICES FOR INDUSTRY DATA. SECTION 2 PRESENTS THE ECONOMETRIC MODELS AND RESULTS. THE RESULTS DO NOT SUPPORT THE BELIEF THAT TIGHT MONEY POLICIES AND THE RESULTING INCREASES IN INTEREST-RATES CAUSE PRICES TO RISE. CHARTS.