Unreal interest rates will not create real demand

The current state of the world economy and the extraordinary experience of negative nominal interest rates are the outcome of a number of overlaying factors. To understand the implications of negative interest rates it is worth considering the difference between the short run and the longer run. The interest rate usually observed in financial markets is a nominal interest rate. The nominal interest rate has two components:  the real rate of interest plus the expected rate of inflation. The real interest rate at the global level is driven by equilibrating global savings with global......(read more)

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