Everything you wanted to know about the natural rate of interest as the core of monetary policy and how it is estimated, being unobservable. That is, the natural rate of interest a theoretical term in general equilibrium neoclassical theory based on Knut Wicksell. The post discusses different ways to estimate it used by economists in forecasting and central banks in policy formulation.
High accessibility/low wonkishness.
Why Are Interest Rates So Low?
Marco Del Negro, Marc Giannoni, Matthew Cocci, Sara Shahanaghi, and Micah Smith
1 comment:
I left a comment there, but my comment wasn't very flattering about the Fed so they may not publish it. So here it is in all it's glory...
One reason for low interest rates not mentioned above far as I could see is that the whole lending and borrowing industry (i.e. private banks) are SUBSIDISED!!
There’s the TBTF subsidy. And then there’s the small matter of that $13 trillion loaned to private banks at sweetheart rates during the crisis rather than at Bagehot’s “penalty” rates. However it’s difficult to know exactly how much was loaned to who and at what rate as this Bloomberg article makes clear.
http://www.bloomberg.com/news/articles/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income
And I do appreciate the problem for the Fed and for private banks. I mean if you’re a private bank making billions by borrowing trillions at a subsidised rate gratis the taxpayer and Main Street, you naturally want to keep quiet about the fact wouldn't you? And if you were the body (i.e. the Fed) which was responsible for that “loot the public purse” exercise, you’d also want to keep the details hushed up.
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