In this post I'll try to describe what various groups seem to believe about interest rates. Undoubtedly I'll get some of the nuances wrong, and I'll try to do updates as people correct this initial post: Traditional Keynesians: 1. Low real interest rates are easy money and high real interest rates are tight money. Because inflation expectations have been low and stable in recent decades, for all intents and purposes nominal interest rates are now a pretty good indicator of the stance of monetary policy.New Keynesians (and Austrians?) 2. Easy money occurs when the Fed sets short-term rates (fed funds rate) below the natural rate, and tight money occurs when interest rate targets are set above the
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