A Negative Equilibrium Interest Rate

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...

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Veröffentlicht in:Financial Analysts Journal. - The Financial Analysts Federation, 1960. - 59(2003), 2, Seite 97-109
1. Verfasser: Levy, Moshe (VerfasserIn)
Weitere Verfasser: Levy, Haim
Format: Online-Aufsatz
Sprache:English
Veröffentlicht: 2003
Zugriff auf das übergeordnete Werk:Financial Analysts Journal
Schlagworte:Investment Theory: portfolio theory Portfolio Management: asset allocation Economics
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520 |a 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. 
540 |a Copyright 2003 Association for Investment Management and Research 
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650 4 |a Portfolio Management: asset allocation 
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