Are interest rates unnaturally low? Or are they where they should be?
By Tim Farrelly – CEO of Farrelly’s, and asset allocation consultant to Australian Unity Personal Financial Services
We hear the claim that interest rates have been kept unnaturally low by Central Banks around the world with the clear implication that no good will come of this and, before long, they will be forced to take them back to more natural levels.
These comments ignore the actual role of Central Banks. Their mandates are typically to keep inflation under control and to keep employment full. This aligns with Kurt Wicksell’s 1898 notion of a natural level of interest rates where inflation is stable and employment is full.
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