Tariffs may lower the natural interest rate – research
Increased trade costs reduce demand for capital, say authors
Tariffs could lower the natural rate of interest in the US, according to research from the Federal Reserve Bank of Minneapolis.
The study, published on August 27, says tariffs increase the relative price of investment. Authors Neil Mehrotra and Michael Waugh say this reduces the demand for capital, which causes the natural rate of interest to fall in the short run. They add that tariffs have a far lower impact on the natural rate of interest in the long run.
“Essentially, even though
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