In the last few years, the U.S. economy has experienced very low nominal interest rates with the short-maturity end of the yield curve pegged effectively at the zero lower bound. At the same time, inflation has been positive and most of the time fluctuating in a range of 1 to 2 percent on an annual basis. The obvious implication of these facts is that the effective real interest rate has been very low (and even negative, depending on maturities) for a considerable period of time. Andolfatto and Williamson set…
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