Yusuf Soner Baskaya, Julian di Giovanni, Sebnem Kalemli-Ozcan, Mehmet Fatih Ulu, 01 September 2017

Most models assume capital flows are endogenous to the business cycle, and that inflows increase during an economy’s ‘boom’ periods. This column shows that the international no-arbitrage condition in fact does not hold, and that capital flows are pushed into an economy due to high global risk appetite. Controlling for domestic monetary policy responses to capital flows and changes in the exchange rate, exogenous capital inflows lower real borrowing costs and fuel credit expansion.

Ricardo Caballero, Alp Simsek, 30 August 2017

Interest rates continue to decline across the globe, while returns to capital remain constant or increasing. The reasons for this widening risky-safe gap are wide-ranging. This column illustrates the secular rise of risk intolerance in the global economy, and summarises a new macroeconomic framework suitable for this environment. It uses this framework to discuss the current global macroeconomic context, its underlying fragility, and the coexistence of low equilibrium interest rates and high speculation.

Stefan Gerlach, 01 August 2017

With the Eurozone in recovery, at some stage the ECB will raise interest rates. This column examines the conditions that might lead to this happening. A statistical analysis suggests that the likelihood of an interest rate increase is currently about 7%, but a combination of stronger growth and higher price pressures could quickly raise this to about 30%. A return of the ECB to its pre-crisis behaviour would also lead to a dramatic rise in the likelihood of an interest rate increase.

Peter Bofinger, Mathias Ries, 29 July 2017

There is a broad consensus that the global decline in real interest rates can be explained with a higher propensity to save, above all due to demographic reasons. This column argues that this view relies on a commodity theory of finance, which is inadequate for analysis of real world phenomena. In a monetary theory of finance, household saving does not release funds for investment, it simply redistributes existing funds. In addition, the column shows that at the global level, the gross household saving rate has declined since the 1980s, as well as net saving rates.

Henrike Michaelis, Volker Wieland, 12 May 2017

In recent speeches, Federal Reserve Chair Janet Yellen and ECB President Mario Draghi have attributed the Fed’s and the ECB’s low interest rate environment to low equilibrium rates rather than to Fed or ECB policies. This column argues that estimates of these equilibrium rates are extremely uncertain and sensitive to technical assumptions, and thus should not be used as key determinants of the policy stance. But if used nevertheless, a consistent application together with associated output estimates call for a tightening of the policy stance. 

Benoit Mojon, 04 March 2017

In the last two decades, there has been substantial co-movement of US and Eurozone interest rates. This column shows that the ECB’s unconventional monetary policy has largely succeeded in decoupling nominal interest rates in the Eurozone from those in the US since 2014. This has been especially true for rates of up to five years’ maturity since the rise in US interest rates following the election of Donald Trump. 

Morten Ravn, Vincent Sterk, 11 January 2017

Recent economic events cast doubt on the standard macroeconomic models. This column looks at new economic models built on the idea that inequality and income risk matter for the business cycle and long-run outcomes. While still in their infancy, these models show promise in addressing the concerns about the old New Keynesian models, and in bringing about a shift in the way that macroeconomists think about aggregate fluctuations and stabilisation policy. 

Stefan Gerlach, Rebecca Stuart, 17 November 2016

The ‘dot plots’ that the Federal Open Market Committee has been publishing since 2012 have attracted a great deal of attention, but are difficult to interpret because changes in them reflect a combination of new information and changes in the projections horizon. This column addresses how the Committee members’ views of monetary policy have evolved in recent years, and have they have responded to changes in the macroeconomic environment.

Marc Dordal i Carreras, Olivier Coibion, Yuriy Gorodnichenko, Johannes Wieland, 21 September 2016

Models that estimate optimal inflation rates struggle to accurately account for interest rates reaching the zero lower bound, due to the lack of historical data available. This column suggests periods of hitting the zero lower bound are longer than previously thought, and models the optimal inflation rate target on this. Given the uncertainty associated with measuring the historical frequency and duration of such episodes, the wide range of plausible optimal inflation rates implies that any inflation targets should be treated with caution.


ADBI invites the submission of theoretical and empirical papers on the implications of negative interest rates for emerging Asia. We are looking for original unpublished research related to, but not limited to, the following topics:

Implication of an extremely low- or negative-yield environment for risk-taking behaviors in Asia and the possibility of financial market dislocations
Side effects of NIRPs on financial markets and real economies of Asia
Transmission channels for the impact of NIRPs on Asian financial markets and exchange rate markets
NIRPs’ challenges in monetary and exchange rate policy and macroprudential policy management in Asia
NIRPs’ potential impact on international reserve holdings in Asia
NIRPs and current account imbalances in Asia
Greater role of international policy coordination in Asia
NIRPs’ impact on banking behavior

Stijn Claessens, Nicholas Coleman, Michael Donnelly, 18 May 2016

Since the Global Crisis, interest rates in many advanced economies have been low and, in many cases, are expected to remain low for some time. Low interest rates help economies recover and can enhance banks’ balance sheets and performance, but persistently low rates may also erode the profitability of banks if they are associated with lower net interest margins. This column uses new cross-country evidence to confirm that decreases in interest rates do indeed contribute to weaker net interest margins, with a greater adverse effect when rates are already low.    

Thorvaldur Gylfason, Helgi Tomasson, Gylfi Zoega, 24 March 2016

There is a lot in a name. This column looks at the ideas that are wrongly attributed to Irving Fisher and David Ricardo. Incorrect attribution can be more dangerous than it seems, and the prestigious names of Ricardo and Fisher have been used to justify inattentive fiscal and monetary policies. Fisher, for instance, understood that under certain circumstances, including perfect foresight, real interest rates might be immune to changes in inflation, at least over the long haul. But he rejected the premises needed to erect such a theory.

Stephen Hansen, Michael McMahon, 03 February 2016

In addition to setting interest rates, central banks also communicate with the public about economic conditions and future actions. While it has been established that communication can drive expectations, less is known about how it does so. This column attempts to shed light on this question. Applying novel measures to the content of Federal Reserve statements, it shows that forward guidance is a more important driver of market variables than disclosure of information about economic conditions.

Filippo Ippolito, Ali Ozdagli, Ander Perez, 02 February 2016

Most lending by banks to corporations occurs through loans with floating interest rates. As a result, conventional monetary policy actions are transmitted directly to borrowers via a change in the interest rate paid on existing bank loans. This column argues that the ‘pass-through’ of policy rates to the cost of outstanding bank loans has significant real effects for corporations.

John Williams, 26 November 2015

Interest rates have been extremely low since the Global Crisis. This column surveys the recent debate over whether they will remain low, or return to normal. While an unequivocal answer is not possible, the evidence suggests a significant decline in average real rates – perhaps to as low as 1%.

James Hamilton, Ethan Harris, Jan Hatzius, Kenneth West, 15 November 2015

No-one is sure what the Fed’s long-delayed nominal interest rate hikes will bring, and there has been much speculation on what the equilibrium rate might look like when the Fed acts. This column argues that it would be foolish to attempt to pin down a precise value for the steady-state real rate. A better approach is to predict the plausible range of values, and evidence suggests that the equilibrium rate will range from a little above zero up to 2%.

Ricardo Caballero, Emmanuel Farhi, Pierre-Olivier Gourinchas, 05 November 2015

Interest rates are near zero – or moving towards it – in major economies worldwide. This column introduces a new theoretical framework that helps to organise thinking on how liquidity traps and slow growth spread across the world. It stresses the role of capital flows, exchange rates, and the shortage of safe assets. Once rates are at the ZLB, the imbalance between the supply and demand of safe assets is redressed by lower global output. Liquidity traps emerge naturally and countries drag each other into them.

David Martinez-Miera, Rafael Repullo, 12 October 2015

Discussions on the connection between the level of interest rates, incentives to search for yield, and financial stability have been prominent over the last ten years or so. More recently, Larry Summers argued in his 2014 secular stagnation address that the decline in the real interest rates would be expected to increase financial instability. This column addresses the challenging issue of providing an explanation for the connection between these phenomena. An increase in the supply of savings that reduces equilibrium real rates can be associated with an increase in the risk of the banking system. This link can explain the emergence of endogenous boom and bust cycles.

Carlos Garriga, Finn Kydland, Roman Šustek, 01 October 2015

An important channel for monetary policy transmission is through mortgage markets. This column illustrates how the effects of an interest rate lift-off, from the zero lower bound, on homeowners depend on three factors: the prevalent mortgage type in the economy (fixed or adjustable rate), the speed of the lift-off, and the inflation rate during the lift-off. This channel of transmission suggests that if the purpose of the lift-off is to normalise nominal interest rates without derailing the recovery, the Federal Reserve Bank and the Bank of England should wait until the economies show convincing signs of inflation taking off. Furthermore, the lift-off should be gradual and in line with inflation.

Gita Gopinath, Sebnem Kalemli-Ozcan, Loukas Karabarbounis, Carolina Villegas-Sanchez, 28 September 2015

Joining the Eurozone was once a near unquestionably good idea. Now, the costs of joining the monetary union are under close scrutiny. This column takes a slightly different tack, presenting an alternative perspective on how joining the euro has impacted productivity in southern Europe. It turns out that capital wasn’t allocated efficiently across firms after cheap borrowing at low interest rates, impacting total factor productivity.