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Are We Living in a Near-Zero World?

Janet Yellen recently signaled that the Fed has shifted its goal from stimulating the economy to maintaining gains. Is this low-interest rate environment is the new normal?

There’s wide agreement that the natural rate of interest has been declining, though less agreement on why. Recent work from Brookings attributes it to investors’ willingness to pay a premium for safe and liquid assets like U.S. Treasuries, which keeps interest rates low.

What will the future look like? Modeling by the Fed showed its rates could hit zero as much as 40% of the time.

Ben Bernanke weighed in on the policy and political consequences. And the New York Times suggested that if monetary policy is losing some of its punch, perhaps fiscal policy—government spending and taxation—will need to be pulled out of the toolbox more often.

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Contributors


Itzhak Gilboa
AXA Chair for Decision Sciences, HEC Paris


Scott Griffith
CEO, Zipcar

Deborah S. Davis
Professor of Sociology, Yale University


Andrew W. Lo
Harris & Harris Group Professor of Finance, MIT Sloan School of Management; Founder and Chief Scientific Officer, AlphaSimplex Group, LLC

Lynn Stout
Distinguished Professor of Corporate & Business Law, Cornell University Law School, Author of The Shareholder Value Myth


Kurt Kuehn
Chief Financial Officer, UPS

Stefan Wagner
Associate Professor and TUSIAD/TCCI Chair in European Economic Integration, ESMT