The ZIRP Trap – why low interest rates are a tax on recovery

WP 2015-02. Executive Summary Western central banks have been pursuing unconventional monetary since at least 2008. Is there a way of ending them? The authors identify the winners and losers of these policies, compared a world without them. How much are the relevant parties better/worse off? The policies harm recovery by subsidizing a distorted structure of production and encouraging overindebtedness, new bubbles and unintended consequences that destabilize the financial system. They also discourage entrepreneurship,hard work and prudent investment. They complicate long-term planning, politicize society and erode the foundations of capitalism. What is, if any, is the way out? And how costly is it going to be – and for whom? The authors analyze the exit options that remain for policy makers, including • financial repression, • high inflation, • default, • capital levies, • bail-ins, • currency reforms, etc. These exit options are evaluated in turn. To download the paper, please, click on the icon below. WP 2015-02

Attached documents