implicit pk assumption :
"There is always a sufficiently low real interest rate that would produce recovery, but it’s a rate that’s hard to achieve under zero bound conditions"
higher inflation expectations seem to be pk's answer once even long rates bump the bottom bound
comes heresey
credit isn't regulated by rates anyway:
koo sez under these conditions
rates don't matter :
"Koo’s argument is that interest rates and monetary policy don’t matter because everyone is debt-constrained. "
we have rations like admissions systems for credit worthiness
these admissions systems change their criteria over the cycle
the system is independent of tuition charges
but what if as we raise standards we lower tuition charges ?
more candidates
what if admission numbers are fixed and only quality rises ??
pk:
"That can’t be right; if there are debtors, there must also be creditors,
and the creditors must be influenced at the margin by interest rates, expected inflation, and all that."
at the margin pk assumes there is no lending quota no fixed dispensable amount of loanable funds
but pk with counter cyclica policy
lenders face reduced rates of return in the recovery phase just when borrowers worthy of the higher standards are pulling back for lack of demand for their product
the nominal rate can go to zero at least in say the initial periods
but not negative
so what's the spur to loan or borrow beyond inflation now
as in by pk
"That said, widespread credit constraints presumably reduce the number of players who can take advantage of lower rates. "
So the IS curve, while still downward-sloping, is probably steeper than normal"
let me add
i think rates are like the price that accompanies a ration
all thru the cycle and under all conditions
ie unconnnected to total credit flow
to be continued
