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ROKE — The Economics Of Negative Interest Rates

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ROKE — The Economics Of Negative Interest RatesThe latest issue of the Review Of Keynesian Economics has a symposium on negative interest rates.From the introduction by Thomas I. Palley, Louis-Philippe Rochon and Guillaume Vallet:…The turn to NIRP reflects the breakdown of the macroeconomic model that guided monetary policy in the decade before the Great Recession. For central bank and mainstream economists the challenge has been to explain that breakdown, and it has given rise to zero lower bound (ZLB) economics. The argument is the Great Recession caused the natural rate of interest to become negative, but the ZLB on nominal interest rates prevented the market from delivering that required interest rate. Consequently, policy was compelled to step in with NIRP to overcome the ZLB

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ROKE — The Economics Of Negative Interest Rates

The latest issue of the Review Of Keynesian Economics has a symposium on negative interest rates.

From the introduction by Thomas I. Palley, Louis-Philippe Rochon and Guillaume Vallet:

The turn to NIRP reflects the breakdown of the macroeconomic model that guided monetary policy in the decade before the Great Recession. For central bank and mainstream economists the challenge has been to explain that breakdown, and it has given rise to zero lower bound (ZLB) economics. The argument is the Great Recession caused the natural rate of interest to become negative, but the ZLB on nominal interest rates prevented the market from delivering that required interest rate. Consequently, policy was compelled to step in with NIRP to overcome the ZLB obstruction.

For Keynesians and Post-Keynesians, the adoption of NIRP raises fundamental theoretical and policy questions. With regard to theory, there is the fundamental question of whether negative interest rates increase aggregate demand (AD). That, in turn, raises the question of whether there exists a natural rate of interest (that is, an interest rate that delivers AD equal to full employment output). With regard to policy, there are questions about possible adverse consequences of negative interest rates, and whether there are superior policy modalities for addressing the problem of AD shortage.

The papers in this symposium address those questions and explore the reasoning and implications of negative interest-rate policy.

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