Gibson's Paradox

Dictionary Says

Definition of 'Gibson's Paradox'


An economic observation made by J. M. Keynes during the period of the gold standard that there is a correlation between interest rates and the general price level. Keynes' finding, which he discusses in "A Treatise on Money" (1930), is a paradox because it is contrary to the view generally held by economists at the time, which was that interest rates were correlated to the rate of inflation.

Investopedia Says

Investopedia explains 'Gibson's Paradox'


In Keynes' research, interest rates were highly correlated to wholesale prices but had little correlation to the rate of inflation. In this paradox, interest rate movements are connected to the level of prices, not the rate of change in prices.

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