r* may be lower than you think
Coronavirus
Many market participants, analysts, and policymakers believe that interest rates will remain significantly higher than in the pre-pandemic era after the current monetary policy cycle concludes. This column argues that the combined forces of constrained aggregate demand due to global debt and a likely normalisation of the risk premium suggest a different outcome – a return to the low interest rate environment that characterised the pre-pandemic era. As the global economy emerges from the COVID-
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