Comment on the Article “a Natural Long-Term Rate”

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Therefore, there are two reasons for the prolonged low real rate. The viewpoints in the article “A natural long-term rate” issued in October, 2013 are correct. However, along with the recovery of U.S. economy in a comprehensive way, Federal Reserve may further continue to raise interest rates in 2016 and U.S. will gradually return to the age of high real rate in future.

3. Conclusion

Based on the above analysis, conclusions can be made as following: firstly, though U.S. has gradually recovered from the financial crisis of 2008, it maintains a high personal saving rate while has a decline in fixed investment, which are mainly resulted from that considering the dim economic growth prospect and great risks of investment, people are reluctant to borrow against future wages and they lack confidence in making investments. Then the sluggish investment and saving glut further lowers the natural rate; secondly, Federal Reserve, as the maker of Federal Funds rate, has controlled policy rate at a low level to accelerate the recovery of U.S. economy, which leads to the low real rate of U.S. for a long period, especially coupled with the sluggish investment and saving glut. Thus, this essay supports the viewpoints from “A natural long-term rate”.

Works Cited

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Bernanke, Ben S. “Why are interest rates so low?”. Brookings. 30th March, 2015. Web. Accessed on 10th March, 2016.

Fama, Eugene F., and G. William Schwert. "Asset returns and inflation." Journal of financial economics 5.2 (1977): 115-146.

Matthews, Kent, and P. Booth. Issues in Monetary Policy. Issues in Monetary Policy: The Relationship between Money and the Financial Markets. Hoboken, NJ: John Wiley & Sons, Inc., (2001).

Meltzer, Allan H. A History of the Federal Reserve, Volume 2. Chicago, IL: University of Chicago Press, (2010).

Petroff, Eric. “The Fed's New Tools For Manipulating The Economy”. Investopedia. 26th March, 2008. Web. Accessed on 10th March, 2016.

Shostak, Se. "The natural rate hypothesis: an econometric test for the South African economy." South African Journal of Economics 49.1 (1981): 1-15..

The Economist. “A natural long-term rate” The Economist. 1st February, 2014. Web. Accessed on 10th March, 2016.

Trading Economic. “United States” Trading Economic. n.g. Web. Accessed on 13th March, 2016.

Wicksell, Knut. Interest and prices. Ludwig von Mises Institute, (1936).

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Appendix: Figures

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Figure 1：personal saving rate of U.S.（2006-2016）Unit: %. Source: Trading Economic

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Figure 2 GDP of U.S. from 2005 to 2014. Source: Trading Economic

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Figure 3 Unemployment rate of U.S. from 2006 to 2016. Source: Trading Economic

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Figure 4. Mortgage rate of U.S. from 2006 to 2016. Source: Trading Economic

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Figure 5. Fed funds rate from 2006 to 2016. Source: Trading Economic

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