When interest rates cannot go lower anymore, when they hit the Zero Lower Bound, monetary policy might work like quantum mechanics. Take this simple example from the world of physics: Classical Newtonian mechanics only work when the mass of a body is big enough. When the mass is too small, you are in quantum mechanics. These are completely different ways of looking at the world. The Zero Lower Bound might be the quantum mechanics of monetary policy. Things just do not operate in the same fashion. If you think things do operate the same way, you might make a very dangerous mistake.This is from an interview with him last month, in the Swiss newspaper Finanz und Wirtschaft.
Tuesday, January 20, 2015
Zero Interest Rate: Like Quantum Physics
It might be, says William White, formerly the wise and prescient chief economist of the Bank for International Settlements.
Posted by Jon Shayne at 4:21 PM