Global Interest Rate Environment with Emphasis on Quantitative Easing Implications

Emmanuel Teitey

doi:10.11648/j.ajbio.20170504.11

Abstract

Constructing global real interest rates at short and long maturities and reviews their evolution since 1980. It also traces the evolution of the cost of capital, It then analyzed key factors that could explained the observed pattern, shift in savings, changes in monetary and fiscal policy, shift in investment demand, changes in relative prices of investment, monetary policy and portfolio shifts between bonds and equity. It closes by considering how the main factors behind the decline in real interest rates might play out in the medium term. Real interest rates and the cost of capital are likely to rise moderately in the medium term from current level. Part of the reason is cyclical, the extremely low real interest rates of recent years reflects large negative output gaps in advanced economies. Indeed, the real interest rates might have declined even further in the absence of the zero lower bound on nominal interest rate.

Highlights

IntroductionFinancial crises are often associated with deep seated changes in both the mandates and functions of central banks
Global Interest Rate Environment with Emphasis on Quantitative Easing ImplicationsFinancial crises are often associated with deep seated changes in both the mandates and functions of central banks
Central banks inaction was widely held responsible for worsening the economic downturn during the great depressions of the 1930s.The result was that monetary policy was placed under the control of fiscal authority for nearly two decades afterwards

Summary

Introduction

Financial crises are often associated with deep seated changes in both the mandates and functions of central banks. This is a well-established regulation in contemporary economic history. The failure of weak monetary regimes to reign in high inflation led to the establishment in the early 1980s, of monetary policy frameworks solidly anchored by price stability mandates and safeguarded by independent and autonomous central banks. One is the great and increasing shared emphasis on central bank independence. Another is the central of price stability for monetary policy. These were the twin foundations of the dominant monetary policy paradigm before the crisis and the crisis has not challenged or discredits either of them

Results

Discussion

Conclusion