Peter Stella on the Quasi-Fiscal Implications of Central Bank Crisis Intervention
Macro Musings with David Beckworth
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The Overestimation of Nominal Interest Rates
As long as expectations of interest rates are correct over time, the treasury should auction that par at the market rate. But what we've seen in many countries since Volcker disinflation is that markets and everyone has consistently overestimated nominal interest rates or inflation in the future. The average ratio of market value to par value in the US before COVID was about 8%, it was about 8% above par.
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