Abstract:
Since the 2008 financial crisis, many economies in the world have seen their real interest rate fall into the negative territory. In contrast to the continuous decline in real interest rates in advanced economies, China's real interest rate has risen notably since 2012 after going down all the way in 2000-2011. However, the changes in the real interest rate do not necessarily lead to the neutral rate of interest that is consistent with full employment. In fact, the real interest rate was lower than the neutral interest rate in China in 2000-2011, and it took just the opposite path in 2012-2019. An appropriate combination of monetary and fiscal policies is required to narrow the gap between real and neutral interest rates.
Keywords: Real interest rate, monetary policy, fiscal policy
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