As indeed the real interest rate has moderated in the post-crisis period, it should not have had a large negative impact on investment, but for significant deterioration in the prospects of return on investment driven by non-monetary factors. Decline in marginal efficiency of capital In this context, let me turn to the investment decision at the firm level.
This is an area in where you are better informed than me. At the firm level, investment decisions may be driven by a comparison of the internal rate of return (IRR) with the hurdle rate.7 As long as interest rate is lower than IRR, additional investment may continue.