A Lower Bound on Real Interest Rates

Business Quest, Volume 23, Issue 1, pages 1-7, 2018

7 Pages Posted: 12 Oct 2016 Last revised: 18 Aug 2018

See all articles by Jesse Zinn

Jesse Zinn

Clayton State University - College of Business

Abstract

I show that real interest rates can be no lower than -100%. This contrasts with recent commentary suggesting that there is no lower bound on the natural rate of interest. I discuss how using the textbook approximation to the Fisher equation can lead to the erroneous belief that there is no lower bound on real interest rates, so this analysis serves as a reminder to avoid using this approximation when considering the effects of extreme levels of inflation.

Keywords: Real Interest Rates, Monetary Policy, Lower Bounds

JEL Classification: E43, E52

Suggested Citation

Zinn, Jesse, A Lower Bound on Real Interest Rates. Business Quest, Volume 23, Issue 1, pages 1-7, 2018, Available at SSRN: https://ssrn.com/abstract=2850210 or http://dx.doi.org/10.2139/ssrn.2850210

Jesse Zinn (Contact Author)

Clayton State University - College of Business ( email )

2000 Clayton State Boulevard
Morrow, GA
United States

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