A Negative Equilibrium Interest Rate
The average after-tax real interest rate on U.S. T-bills and the average rate of return on long-term government bonds (LTGB) have been negative over the past 75 years. Is this negative rate an equilibrium phenomenon or simply an empirical fluke? We show that a negative equilibrium interest rate is p...
| Veröffentlicht in: | Financial Analysts Journal. - The Financial Analysts Federation, 1960. - 59(2003), 2, Seite 97-109 |
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| Format: | Online-Aufsatz |
| Sprache: | English |
| Veröffentlicht: |
2003
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| Zugriff auf das übergeordnete Werk: | Financial Analysts Journal |
| Schlagworte: | Investment Theory: portfolio theory Portfolio Management: asset allocation Economics |
| Zusammenfassung: | The average after-tax real interest rate on U.S. T-bills and the average rate of return on long-term government bonds (LTGB) have been negative over the past 75 years. Is this negative rate an equilibrium phenomenon or simply an empirical fluke? We show that a negative equilibrium interest rate is possible and that the wealthier the nation is, the more negative the equilibrium interest rate can be. This phenomenon results from a positive inflation rate and taxation of nominal profits, and it cannot hold in a period of zero inflation or in a period of deflation. A positive demand for T-bills and for LTGB exists also in a portfolio framework, even when these two assets are characterized by a negative expected rate of return and other risky assets are yielding positive expected returns. |
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| ISSN: | 0015198X |