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How Persistent Low Returns Will Shape Saving and Retirement$
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Olivia S. Mitchell, Robert Clark, and Raimond Maurer

Print publication date: 2018

Print ISBN-13: 9780198827443

Published to Oxford Scholarship Online: October 2018

DOI: 10.1093/oso/9780198827443.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 25 September 2021

Politics, Independence, and Retirees

Politics, Independence, and Retirees

Long-term Low Interest Rates at the US Federal Reserve

(p.11) Chapter 2 Politics, Independence, and Retirees
How Persistent Low Returns Will Shape Saving and Retirement

Peter Conti-Brown

Oxford University Press

Until recently, it was widely believed that central banks must protect people from their own worst instincts: the populace demands easy money and low interest rates, and a politically sensitive representative class will give it to them. Central banks have the responsibility of resolving this time inconsistency problem by protecting the long-term value of the currency even against the short term demands of politics. Yet the financial crisis of 2008 and the 2016 election have changed this narrative. This chapter explores how this new political economy of central banking, in the face of long-term low interest rates, changes the posture of central banks against the rest of the polity. It discusses some history of political pressures against central banks in other climates and makes predictions about how the ‘new normal’ of lower interest rates will challenge the Fed’s ability to stay above the political fray, despite its best intentions.

Keywords:   Federal Reserve, interest rate policy, unemployment rate target, time inconsistency, equilibrium interest rate, nominal interest rate

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