03 - John Cochrane on Finance, the Fiscal Theory of the Price Level, and Blogging
Macro Musings with David Beckworth
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The Discount Rate and the Business Cycle
The business cycle is about people's willingness to take risk, not really about the level of interest rates. The discount rate is what really drives business cycles. So either people think governments are going to be running big surpluses in the future or they are willing to hold government debt despite very low rates of return. As I look out the window, it smells of discount rate effect to me. Demand for safe assets, um, demand for nominally safe assets.
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