Interest rates set to soar or stay near zero, impacting economy.
The article explores three possible scenarios for interest rates as monetary policy returns to normal. The researchers use time-series models with data from Japan to estimate these scenarios. The models consider factors like GDP growth, inflation, policy rates, and bond rates. The findings suggest that interest rates could return to high inflation levels of the 1970s, low inflation rates seen from 1983 to 2007, or remain near zero for an extended period. These scenarios could impact the U.S. economy from 2008 to 2013, depending on the policy regime chosen after the federal funds rate target is lifted in 2015.