Thursday, September 15, 2011

Real truths about interest rates

...The natural rate of interest is an important benchmark for monetary policy. It helps the central bank to understand the impact of monetary policy on economic activity. For example, if the actual real rate is equal to the natural rate of interest, the monetary policy is more or less neutral. An upward deviation of the real rate of interest from the natural rate tends to have contractionary effect on economic activity and will have downward pressure on inflation. ...

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