Saturday, March 6, 2021

The Workings of Negative Interest Rates

An article by Haksar and Koop (2020), the IMF explaining negative interest rate. 

Excerpt:

"For most of history, nominal interest rates—stated rates that borrowers pay on a loan—have been positive, that is, greater than zero. However, consider what happens when the rate of inflation exceeds the return on savings or loans. When inflation is 3 percent, and the interest rate on a loan is 2 percent, the lender’s return after inflation is less than zero. In such a situation, we say the real interest rate—the nominal rate minus the rate of inflation—is negative."

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Oppenheimer and Oscar Economics

This  article  is quite long, but has important modern implications.  Source: Michael Ramirez, The Gazette.