Safety, liquidity, and the natural rate of interest
Abstract: Why are interest rates so low in the Unites States? We find that they are low primarily because the premium for safety and liquidity has increased since the late 1990s, and to a lesser extent because economic growth has slowed. We reach this conclusion using two complementary perspectives: a flexible time-series model of trends in Treasury and corporate yields, inflation, and long-term survey expectations, and a medium-scale dynamic stochastic general equilibrium (DSGE) model. We discuss the implications of this finding for the natural rate of interest.
File format is text/html
File format is application/pdf
Description: Full text
Provider: Federal Reserve Bank of New York
Part of Series: Staff Reports
Publication Date: 2017-05-11