Interest rates have been extremely low since the Global Crisis. This column surveys the recent debate over whether they will remain low, or return to normal. While an unequivocal answer is not possible, the evidence suggests a significant decline in average real rates – perhaps to as low as 1%.
John C. Williams, Thursday, November 26, 2015 - 00:00
James D. Hamilton, Ethan Harris, Jan Hatzius, Kenneth D. West, Sunday, November 15, 2015 - 00:00
No-one is sure what the Fed’s long-delayed nominal interest rate hikes will bring, and there has been much speculation on what the equilibrium rate might look like when the Fed acts. This column argues that it would be foolish to attempt to pin down a precise value for the steady-state real rate. A better approach is to predict the plausible range of values, and evidence suggests that the equilibrium rate will range from a little above zero up to 2%.
Ricardo Caballero, Emmanuel Farhi, Pierre-Olivier Gourinchas, Thursday, November 5, 2015 - 00:00
Interest rates are near zero – or moving towards it – in major economies worldwide. This column introduces a new theoretical framework that helps to organise thinking on how liquidity traps and slow growth spread across the world. It stresses the role of capital flows, exchange rates, and the shortage of safe assets. Once rates are at the ZLB, the imbalance between the supply and demand of safe assets is redressed by lower global output. Liquidity traps emerge naturally and countries drag each other into them.
David Martinez-Miera, Rafael Repullo, Monday, October 12, 2015 - 00:00
Discussions on the connection between the level of interest rates, incentives to search for yield, and financial stability have been prominent over the last ten years or so. More recently, Larry Summers argued in his 2014 secular stagnation address that the decline in the real interest rates would be expected to increase financial instability. This column addresses the challenging issue of providing an explanation for the connection between these phenomena. An increase in the supply of savings that reduces equilibrium real rates can be associated with an increase in the risk of the banking system. This link can explain the emergence of endogenous boom and bust cycles.
Carlos Garriga, Finn Kydland, Roman Šustek, Thursday, October 1, 2015 - 00:00
An important channel for monetary policy transmission is through mortgage markets. This column illustrates how the effects of an interest rate lift-off, from the zero lower bound, on homeowners depend on three factors: the prevalent mortgage type in the economy (fixed or adjustable rate), the speed of the lift-off, and the inflation rate during the lift-off. This channel of transmission suggests that if the purpose of the lift-off is to normalise nominal interest rates without derailing the recovery, the Federal Reserve Bank and the Bank of England should wait until the economies show convincing signs of inflation taking off. Furthermore, the lift-off should be gradual and in line with inflation.
Gita Gopinath, Sebnem Kalemli-Ozcan, Loukas Karabarbounis, Carolina Villegas-Sanchez, Monday, September 28, 2015 - 00:00
Joining the Eurozone was once a near unquestionably good idea. Now, the costs of joining the monetary union are under close scrutiny. This column takes a slightly different tack, presenting an alternative perspective on how joining the euro has impacted productivity in southern Europe. It turns out that capital wasn’t allocated efficiently across firms after cheap borrowing at low interest rates, impacting total factor productivity.
Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, Sunday, August 2, 2015 - 00:00
Does monetary policy really face a zero lower bound or could policy rates be pushed materially below zero per cent? And would the benefits of reforms to achieve negative policy rates outweigh the costs? This column, which reports the views of the leading UK-based macroeconomists, suggests that there is no strong support for reforming the monetary system to allow policy rates to be set at negative levels.
Lars P Feld, Christoph M Schmidt, Isabel Schnabel, Benjamin Weigert, Volker Wieland, Friday, February 20, 2015 - 00:00
Sebastian Edwards, Wednesday, February 4, 2015 - 00:00
Dirk Niepelt, Wednesday, January 21, 2015 - 00:00
Philippe Andrade, Richard Crump, Stefano Eusepi, Emanuel Moench, Tuesday, December 23, 2014 - 00:00
Jean-Pierre Landau, Tuesday, December 2, 2014 - 00:00
Kristina Morkunaite, Felix Huefner, Thursday, November 27, 2014 - 00:00
Loukas Karabarbounis, Brent Neiman, Tuesday, November 25, 2014 - 00:00
Charles A.E. Goodhart, Philipp Erfurth, Tuesday, November 4, 2014 - 00:00
Charles A.E. Goodhart, Philipp Erfurth, Monday, November 3, 2014 - 00:00
Jagjit Chadha, Sunday, November 2, 2014 - 00:00
David Miles, Wednesday, October 22, 2014 - 00:00
Karl Walentin, Thursday, September 11, 2014 - 00:00
Philippe Bacchetta, Kenza Benhima, Sunday, August 24, 2014 - 00:00
Among the various explanations behind global imbalances, the role of corporate saving has received relatively little attention. This column argues that corporate saving is quantitatively relevant, and proposes a theory that is consistent with the stylised facts and useful for understanding the current phase of global rebalancing. The theory implies that, while the economic contraction originating in developed countries has pushed interest rates towards the zero lower bound, the recent growth slowdown in emerging countries could push them out of it.