Feb 7, 2013
Forex Flash: What to expect out of Japanese policymakers – Goldman Sachs
Beyond the question of whether Japanese policymakers achieve success, a good anchoring point is to look at what a complete exit from a deep liquidity trap like Japan’s would look like across asset markets. According to the Economics Research Team at Goldman Sachs, “As an economy moves into a liquidity trap, nominal rates become unable to fall below the zero bound. The result is that real rates remain above where they would naturally be and the real (and nominal) exchange rate tends to be stronger than it would otherwise be. As a result, local asset markets are also weaker than otherwise, reflecting an excessively high real interest rate structure.”
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