The underlying problem – which has plagued the global economy since the crisis, but has worsened slightly – is lack of global aggregate, demand., Stiglitz
Clearly, the idea that large corporations precisely calculate the interest rate at which they are willing to undertake investment – and that they would be willing to undertake a large number of projects if only interest rates were lowered by another 25 basis points – is absurd.
It should have been apparent that most central banks’ pre-crisis models – both the formal models and the mental models that guide policymakers’ thinking – were badly wrong.
None predicted the crisis; and in very few of these economies has a semblance of full employment been restored.
The ECB famously raised interest rates twice in 2011, just as the euro crisis was worsening and unemployment was increasing to double-digit levels, bringing deflation ever closer.
Joseph E. Stiglitz, Project Syndicate 13 April 2016
Stiglitz at IntCom
It should have been apparent that most central banks’ pre-crisis models – both the formal models and the mental models that guide policymakers’ thinking – were badly wrong.
None predicted the crisis; and in very few of these economies has a semblance of full employment been restored.
The ECB famously raised interest rates twice in 2011, just as the euro crisis was worsening and unemployment was increasing to double-digit levels, bringing deflation ever closer.
Joseph E. Stiglitz, Project Syndicate 13 April 2016
Stiglitz at IntCom
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