Rate Hikes Curb Output for at Least a Decade, SF Fed Study Finds
- Increase in interest rates ‘casts a long shadow’ on economy
- Effects of lower policy rates vanish after a few years
This article is for subscribers only.
Central bank interest-rate increases reduce potential economic output for at least 12 years, in contrast to traditional theories of national economies that assume policy is neutral in the long run, Federal Reserve Bank of San Francisco research found.
“We find that these long-run effects develop primarily through investment decisions that ultimately result in lower productivity and lower capital stock than would be available without policy intervention,” San Francisco Fed researchers Òscar Jordà and Sanjay R. Singh, and University of California Davis professor Alan M. Taylor said in a research note published Tuesday on the bank’s website.