What is the logic behind your assumption that ZIRP helped deflation? Just from a signalling point of view, or in rediretcting funding from savers to creditors?
It's the signalling effect, and the compression of fixed asset investment returns that bring forward returns but make it harder to allocate capital to the correct sectors.
Then you have the secondary effect on banks in countries that rely on a steep yield curve to make money. If they make more money, they have more budget to lend against risky investments that they wouldn't with highly compressed net interest margins.
The only argument I've heard against it is that it transfers wealth from savers to spenders (i.e. from old to young) but the compression in cap rates on property outdo this effect by 10-fold.
Ultra low rates also dampens volatility in the economy and in markets. Volatility is necessary to flush out bad investments, and for sufficient healthy risk premium to exist. It's better to have it be difficult to take risk and get rewarded than to reward those that can only take risk because they already have excess capital.
What is the logic behind your assumption that ZIRP helped deflation? Just from a signalling point of view, or in rediretcting funding from savers to creditors?
It's the signalling effect, and the compression of fixed asset investment returns that bring forward returns but make it harder to allocate capital to the correct sectors.
Then you have the secondary effect on banks in countries that rely on a steep yield curve to make money. If they make more money, they have more budget to lend against risky investments that they wouldn't with highly compressed net interest margins.
The only argument I've heard against it is that it transfers wealth from savers to spenders (i.e. from old to young) but the compression in cap rates on property outdo this effect by 10-fold.
Ultra low rates also dampens volatility in the economy and in markets. Volatility is necessary to flush out bad investments, and for sufficient healthy risk premium to exist. It's better to have it be difficult to take risk and get rewarded than to reward those that can only take risk because they already have excess capital.