October 20, 2015

A DEFLATIONARY EPOCH:

Get Used to It. Low Rates Are Here to Stay.  (Noah Smith, 10/20/15, Bloomberg View) 

There are reasons to think that central banks are not the big driver of low rates. First of all, it isn't just nominal rates that are historically low, but real inflation-adjusted rates as well. Most economists believe that real interest rates can't be affected by monetary policy for very long. Second, most economists think that if central banks are holding rates below what private markets want, we should be seeing high inflation. We're not.

Indeed, applying the same theory, the fact that we continue to have deflation or disinflation suggests that real rates are too high, not too low.

Posted by at October 20, 2015 6:34 PM
  

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