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You’re right, negative real returns definitely happen - but that’s not the interest rate. Interest rates apply to loans, not assets.
by samsonradu 7y ago
You’re right, negative real returns definitely happen - but that’s not the interest rate. Interest rates apply to loans, not assets.
- BenoitEssiambre 7y agoThe real natural rate should be in line with the private markets with regards to safe, liquid short term assets. There is an issue when you hit 0% nominal, called the zero lower bound problem (https://en.wikipedia.org/wiki/Zero_lower_bound https://en.wikipedia.org/wiki/Zero_lower_bound). Mechanically you can solve that by keeping inflation high enough that you don't reach negative nominal rates even when you have negative real rates.