In this world, interest rates are determined as the residual - they rise or fall enough to ensure that the growth of money supply stays on its constant path. Note, of course, that economic growth will not be constant: its annual growth will fluctuate around the long-term trend. This is a very simple model and a very appealing one.
Njuguna Ndung’u: Transformation of banks in Kenya Address by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, during the Inaugural Session of the 11th Bank Human Resources Conference 2011 of the Indian Institute of Banking and Finance, Nairobi, 28 April 2011.