The highs and lows of interest rates

Scott Sumner was nice enough to post some quotes from Uncle Milt.

"Low interest rates are generally a sign that money has been tight, as in Japan [1998] ; high interest rates, that money has been easy."

Using a queuing model we can explain this fact. When the whole yield curve is elevated (high interest rates) , then inventories, including money, are growing fast along the production chain. An inflated yield curve is not tight. Tight is constrained inventories, low interest rates. The yield curve matches other goods inventory growth at the various term points, with a six month lag.