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- Title
Zero Interest Policy & the New Abnormal: A Critique.
- Authors
Morley, James
- Abstract
The article discusses Michael Beenstock's book, which critiques the recent trend of setting policy interest rates close to zero and running large budget deficits during macroeconomic crises, which he calls 'the New Abnormal'. Beenstock argues that these policies are unsustainable and pose an existential risk, as they can lead to high inflation and debt crises. He also criticizes modern macroeconomic theory for misinterpreting the natural rate of interest and relying too much on quantitative easing and large budget deficits. The article also touches on Japan's experience with the New Abnormal and discusses the impact of mitigation policies during the COVID-19 pandemic. Beenstock concludes the book by discussing cryptocurrencies and their potential as a new form of gold. The article suggests that more engagement with related literature would have been beneficial. The text discusses the criticisms and limitations of modern macroeconomics, particularly in relation to interest rates, macroeconometric models, and the COVID-19 pandemic. The author argues that low interest rates may be a result of the actual low neoclassical rate, rather than policy decisions. They also critique the use of VAR models and suggest that DSGE models have improved in terms of empirical fit. However, the author disagrees with some of the claims made by the book's author, particularly regarding the cost of mitigation strategies during the pandemic. They also highlight the importance of engaging with related literature and conducting useful applied analysis.
- Subjects
CONSUMPTION (Economics); ECONOMIC statistics; INTEREST rates; MICROECONOMICS; COUNTERPARTY risk; ECONOMIC policy; DEPRECIATION; CRYPTOCURRENCIES
- Publication
Economic Record, 2024, Vol 100, Issue 329, p261
- ISSN
0013-0249
- Publication type
Article
- DOI
10.1111/1475-4932.12789