The Malady of Low Global Interest Rates

Related publications

• Working Paper No.1034 08 December 2023

  Euro Interest Rate Swap Yields: A GARCH Analysis

  Khawaja Mamun and Tanweer Akram
  Abstract

  This paper models the month-over-month change in euro-denominated (EUR) long-term interest rate swap yields. It shows that the change in the short-term interest rate has an economically and statistically significant effect on the change in EUR swap yields of different maturity tenors, after controlling for various macroeconomic and financial variables, such as the month-over-month change in inflation or core inflation and the growth of industrial production, and the percentage change in the equity price index, the exchange rate, and the size of the European Central Bank’s (ECB) balance sheet. It uses a generalized autoregressive conditional heteroskedasticity (GARCH) approach to model the dynamics of the monthly change in EUR swap yields and their volatility. The results of the estimated models of EUR swap yields of different maturity tenors extend the Keynesian view that the central bank’s monetary policy actions have a decisive influence on long-term government bond yields and long-term market interest rates, primarily through their effects on the current short-term interest rate.

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• Working Paper No.1026 01 August 2023

  Banking Sector, Distributive Conflict, and Monetary Theory of Distribution

  Riccardo Zolea
  Abstract

  This paper analyzes the implications of distributional contrast for the monetary theory of distribution. The first step is to try to introduce the banking sector within Pivetti's monetary distribution theory approach. Pivetti in fact does not analyze the links between the central bank and the banking sector. It therefore seems interesting to study what role the banking sector and the financial capitalists play in this framework. Thus, an attempt is made to model the banking sector and its links to the production sector within the framework of Pivetti’s approach. As this integration does not present any particular theoretical problems, the paper discusses then the ability of the aforementioned approach to explain the coexistence of near-zero (if not negative) interest rates and low real wages. The difficulty in explaining this economic phenomenon opens the way to a more general discussion of the dynamics inherent in the contrast between workers and capitalists and between financial and productive capitalists. Thus, the analysis shows that six different distributional configurations are possible (plus two others that are unstable or unrealistic), of which only two can be explained through Pivetti's monetary theory of distribution. The other four can be explained by elaborating more recent approaches that continue, enrich, and develop Marx's approach.

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• Policy Notes No.3 24 July 2023

  In Defense of Low Interest Rates

  James K. Galbraith
  Abstract

  In recalling John Maynard Keynes’s revolutionary theory of interest, reviewing the doctrines Keynes sought to overthrow, and analyzing the structural transformations of the US economy, James K. Galbraith maintains there is no alternative to a policy of low interest rates. However, such a policy cannot be effective, he argues, without a radical restructuring of the US economy as a whole.

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