Third, on real interest rates: Central banks can control only nominal monetary magnitudes, not real ones. We should also not forget the equilibrium real interest rate, which is determined by market forces, especially the balance between savings and investment. Before the pandemic – I need to remind you – we had agreed that the equilibrium real interest rate was zero or even negative.
Indeed, real consumer spending actually rose at a greater rate during the recession than it did over the first year of the recovery.