The IS curve makes no sense. When the yield curve is squat and flat output is generally lower. Higher output is associated with higher interest rates. So the IS curve is not a set of equilibrium points for a single economy.
When the Central bankers drop short term rates below real rates we get a bunch of bankers crowding around the spigot, we get finance subsidies. Bankers have to be more liquid when rates are below the real, they have to deal with more volatility.
I tried a few times to get this, maybe this time is a charm. The real message seems to be, drop short term rates below real and generate a lot of short term economic activity at the expense of long term planning. The central bank can do this for a few months until the bankers build a hedging network.
No comments:
Post a Comment