Monday, October 15, 2012

Krugman, Low Rates, and Growth Expectations

One assertion frequently made by Paul Krugman is that low long-term interest rates in advanced economies reflect the expectation of continued economic weakness. Apparently, there's to be a debate in Britain's House of Commons featuring Krugman et. al. on the subject.

I figured I'd investigate this hypothesis with regard to the United States. If low rates imply weak expectations and rising rates rising expectation, I expect rates and the S&P to rise and fall together.
Krugman, as usual, is proved correct by the evidence.                  

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