Real interest rates, derived by subtracting the rate of inflation from the central bank’s policy rate, are at historic lows – punishing savers while delivering a boost to fixed-rate borrowers ...

Example 13.1: Discount Points for Lower Interest Rates This example illustrates the comparison of two $100,000 loans. The major difference between the two loans is that the nominal interest rate in ...

Chile had a real interest rate of 4.92%, as well as a nominal interest rate of 11.25%. On the other side of the coin, Argentina had the lowest real interest rate, at -19.61%.

Raising the target rate, as Prof. Stanford suggests, does mitigate the nominal interest rate problem, but it still focuses on inflation rather than stagnation.

Assume, too, an equilibrium real rate of interest of 0 to 2 per cent. Then nominal short rates would be 2 to 5 per cent and, given risk premiums, longer-term rates would be 3-6 per cent.

For example, the 30-year fixed mortgage rate was 11.2 percent in 1979, increased to 16.63 percent in 1981, stood at 12.43 percent in 1985 and was still in double digits at 10.13 percent in 1990.