It’s Worse than “Reverse” – The Full Case Against Ultra Low and Negative Interest Rates




It is becoming increasingly accepted that lowering interest rates might at some point prove contractionary (the “reversal interest rate”) if lower lending margins cut the supply of bank loans. This paper argues that there are many other reasons to question reliance on monetary policy to provide economic stimulus, particularly over successive financial cycles. By encouraging the issue of debt, often for unproductive purposes, monetary stimulus becomes increasingly ineffective over time. Moreover, it threatens financial stability in a variety of ways, it leads to real resource misallocations that lower potential growth, and it finally produces a policy “debt trap” that cannot be escaped without significant economic costs. Debt-deflation and high inflation are both plausible outcomes.

Author(s): William White

Publication Date: 5 March 2021

Publication Site: Institute for New Economic Thinking

Covid Is Hitting Workers Differently Than the 2008 Financial Crisis



In a new INET working paper, we examine inequality in employment outcomes across social groups during recessions. We take a comparative perspective, studying results from two recent and severe US recessions: the “Great Recession” linked with the global financial crisis beginning in late 2007 and the “lockdown” recession caused by the COVID-19 pandemic. Comparing these two events presents an interesting case study to explore inequality in recessions.

The severity of a recession depends both on how much employment declines and the persistence of those declines. The primary job-months lost statistic in our analysis is designed to capture both of these dimensionsThis measure simply adds up the difference between actual employment and pre-recession employment over the recession months. For example, if the pre-recession employment trend for a demographic group was flat and a person in that group lost a job in April but went back to work in July, that person’s experience would add three job-months lost to the total in their demographic group.

Author(s): Steven Fazzari, Ella Needler

Publication Date: 19 April 2021

Publication Site: Institute for New Economic Thinking