Research Topics

Publications on Neutral interest rate

There is 1 publication for Neutral interest rate.
  • Quantitative Easing, Functional Finance, and the “Neutral” Interest Rate

    Working Paper No. 685 | September 2011

    The main purpose of this study is to explore the potential expansionary effect stemming from the monetization of debt. We develop a simple macroeconomic model with Keynesian features and four sectors: creditor households, debtor households, businesses, and the public sector. We show that such expansionary effect stems mainly from a reduction in the financial cost of servicing the public debt. The efficacy of the channel that allegedly operates through the compression of the risk/term premium on securities is found to be ambiguous. Finally, we show that a country that issues its own currency can avoid becoming stuck in a structural “liquidity trap,” provided its central bank is willing to monetize the debt created by a strong enough fiscal expansion.

    Associated Program:
    Alfonso Palacio-Vera

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