As first pointed out by Friedman (1969), when the nominal interest rate
on safe assets is positive, economic agents will tend to hold too little money (in real terms) for transaction purposes.
High nominal interest rates
spurred on by high levels of inflation coupled with a comprehensive deposit-insurance scheme managed by the CBI incentivized banks to push into foreign markets to obtain lower-cost funding.
In China during the first decade of this century nominal GDP growth rates have been 16-20%, depending on which period you measure and what assumptions you make about GDP growth, while nominal interest rates
have been roughly 6-7%.
In fact, a lower real rate accounts for the bulk of the decrease in nominal interest rates
(according to the Cleveland Fed model).
The mortgage lending market is expected to remain sluggish during most of 2013 but gradually improve through 2015 as positive factors—including a new governmental support program for first-time homebuyers, a more-relaxed regulatory environment, lower nominal interest rates
, and higher affordability due to lower prices of real estate—will take full effect.
Governments have a responsibility to tame inflation, to ensure macro economic stability therefore with a long term goal of lowering nominal interest rates
," he said.
Recently the world has witnessed the deeply strange and rare phenomenon of negative nominal interest rates
(negative real interest rates have been around a long time and no one finds it surprising).
We use time-series data over the period 1960 to 2007 for monetary aggregates, namely, the monetary base, M1, currency and demand deposits, gross domestic product (GDP), and nominal interest rates
, to estimate both semi-log and double log (aka log-log and log-lin, respectively) money demand functions.
During his presentation, Bullard discussed the use of balance sheet policy (or quantitative easing) to conduct stabilization policy once short-term nominal interest rates
are near zero.
com/maverecon/2009/05/negative-interest-rates-when-are-they-coming-to-a-central-bank-near-you) cut nominal interest rates
below zero somehow, either by printing money to excess or taxing bank deposits or generally destroying cash, so that real rates could also stay negative.
In this regard, Citi Research (2010,5), presumably influenced strongly by Buiter (2009), states that "there are at least three administratively and technically feasible ways to eliminate the zero lower bound on nominal interest rates
Whether the regime targets money growth rates as proposed by McCallum (1999), nominal interest rates
as proposed by Taylor (1999), or some other endogenous variable, the literature is converging to a set of benchmark conditions for local (in)determinacy in monetary economies.