BIS paper explains monetary policy’s impact on long-run rates
Authors say “forgiving” economy allows central bankers to set policy without clear view of r*
Research published on March 4 by the Bank for International Settlements offers an explanation of the apparent sensitivity of long-run rates to short-run monetary policy decisions.
The working paper outlines a model that suggests central banks’ policy decisions could have lasting effects on real interest rates, contrary to standard models.
The widely used New Keynesian (NK) model suggests that the long-run neutral rate, r*, is determined by real-economy factors such as productivity and demographics
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