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The Trilemma for Low Interest Rate Macroeconomics

Author

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  • Jean-Baptiste Michau

    (Ecole Polytechnique, France)

Abstract

Three desirable goals of macroeconomic policy are: full employment, low inflation, and a low debt level with no Ponzi scheme. This paper shows that, when the natural real interest rate is persistently depressed, at most two of these three goals can be simultaneously achieved. Depending of the parameters of the economy, each of the three possibilities can be the preferred option, resulting in a non-trivial policy trilemma.

Suggested Citation

  • Jean-Baptiste Michau, 2022. "The Trilemma for Low Interest Rate Macroeconomics," Working Papers 2022-19, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2022-19
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Liquidity trap; Ponzi scheme; Secular stagnation.;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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