COWEN: No One Really Understands Real Interest Rates
Tyler Cowen writes in Bloomberg…
The law of demand is one of the sacrosanct principles of economics: If the price of apples goes up, the demand for apples will go down. Yet when real interest rates go up, it is not obvious that the demand to invest goes down, even if the numbers are adjusted for possible reasons why real interest rates might have changed in the first place. This raises a profound question: If the law of demand doesn’t apply, how well do we understand investment and real interest rates at all?