Puzzles and Paradoxes Posed by Negative Interest Rates
Abstract
For centuries, economists have proposed theories of interest rates which presumed rates will always be positive in the long term. At the same time, while it’s been recognized that long-term financial decisions are best made on the basis of real rather than nominal return and risk, until recently our historical perspective has been almost exclusively framed in terms of nominal, not real, returns. In this talk, we will revisit the historical record in conjunction with conventional theories of interest rates in the light of fresh scholarly research and recent market experience. We will suggest that a future in which negative long-term interest rates may be the “new normal” will have profound implications for our most fundamental models for valuing stocks and bonds under uncertainty.
Bio
Victor founded Elm in 2011 to help himself and his friends manage their savings in an efficient and disciplined manner, and to capture the long-term returns they ought to earn. He has spent nearly 30 years actively involved in markets and financial innovation, having been a Managing Director in the bond-arbitrage group at Salomon Brothers and later a founding partner of Long-Term Capital Management (LTCM).
