An interview from Rethinking Economics:
Andrea, what is your experience with using textbooks when teaching macro and monetary economics?
I have long been teaching undergraduate courses in macro and monetary economics, and I always found the most popular textbooks only partially helpful. Hence, in those courses where I still have a textbook, I always complement the main text with a reading list and my own lecture notes.
Do you feel this position is shared by other economics instructors?
Will unconventional monetary policy be over anytime soon?
Yellen: No. It has become our norm.
Will interest rates go back to pre-crisis levels anytime soon?
Yellen: No. The world has changed.
Is the Fed raising rates?
Not quite. Since December 2015, long term rates are lower, not higher. (See Chart)
Is interest rate policy helpful for growth?
Yellen: It is not enough.
Commenting on the last Japanese move, Lisa Abramowicz (The Negative Side of Negative Rates) rightly argues that the only positive effect on spending that one can expect from negative rates is through a depreciation of the yen (at least, as long as it lasts). She writes that negative rates is an idea that “sounds good in theory”, but she clearly acknowledges that the effect on bank lending is likely to be dampening, not stimulative. That negative rates do not have an expansionary, and have probably a deflationary effect has been maintained by some economists, including this blog here and here and also the Q&A here. It should be clear by now to an increasingly number of people that what we call a negative interest rate (on banks’ excess reserves) is actually a positive tax rate!
I suspect that those who believe that negative rates stimulate lending have a view of central bank interest rates that does not fit the reality of a monetary system. They seem to think there is a symmetry between positive and negative rates. They seem to think that because lower interest rates mean lower cost of borrowing, an interest that gets so low to turn negative is an even more powerful borrowing (and spending) stimulus. Equivalently, at negative rates lenders will get encouraged to lend less (and spend) more.
Stimulus?