The current negative real interest rate environment is unprecedented in modern history. The rates of all major developed economies (e.g., the United States, Japan, and the EU) are at historic lows as a result of radical actions by central banks aimed at overcoming the recent recession and the risk of deflation.

The authors characterize the current policy as monetary Keynesianism. They explain that the US Fed focuses on achieving nominal GDP growth through the stabilization of asset prices and moderate inflation, which is why the Fed has kept rates extremely low and injected $3.5 trillion into the banking system since 2008.

But only a small fraction of this excess cash increases the M2 money supply (i.e., cash, savings, and money funds), whereas the rest is kept by banks in the Federal Reserve. The authors believe that only by expanding M2 can prices—and thus nominal GDP—be stabilized, but such an expansion would still trigger a relatively slight inflation hike.

Structural changes in demand have caused a further drop in real interest rates and very low inflation, which explains why savings are up and investments are down despite the efforts of central banks. The authors attribute this outcome to deleveraging and a higher propensity to save following the painful experience of the 2008 financial crisis, as well as developments in new technologies (e.g., mobile apps and ecommerce) that require relatively little capital investment.

Finally, the cost of keeping interest rates extremely low is borne by savers, who receive little or no interest, and the extreme growth of sovereign debt. Low rates, however, decrease debt-servicing costs for borrowers and the government. The authors conclude that if costs are netted against benefits, all major economies have managed to fend off recession and avoid devastating deflation.

The authors’ findings consist of a literature review and a discussion of the reasons for, and consequences of, an expansionary monetary policy. No formal data-based research is provided.

Negative rates are not easily explained from a theoretical perspective. Extreme excess liquidity and cheap loans should have massively accelerated inflation in no time. Contrary to expectations, however, inflation is very low, and until recently, Switzerland and Japan were experiencing deflation. The authors explain this phenomenon and encourage readers to focus on the M2 money supply because it drives inflation and nominal GDP.

Although they generally praise the Fed’s work in fending off recession, the authors attempt to identify the winners and losers of the Fed’s actions. Judging the monetary stimulus programs from the perspective of the fairness of wealth redistribution from savers to borrowers, as well as the ability of the US economy to repay increased debt, would be beneficial.

In addition, some economists argue that interest rate hikes were started too late and that the Fed may have overheated the economy. The fact that US property prices already surpass those of the peaks observed before the 2008 financial crisis could portend another asset price bubble.

The authors’ findings are well structured. They may be useful for investors, policymakers, researchers, and others who want to better understand the implications of negative interest rates for the economy.