Are Interest Rates Really Low?

Daniel Feenberg (), Clinton Tepper and Ivo Welch

No 24258, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Contrary to common perception, many fixed-income investors have not suffered unusually low real interest rates in and after the Great Recession of 2008. This is because taxable investors must first pay taxes on nominal interest returns, before inflation further reduces their earned real interest rates. To obtain the same real after-tax yield, investors need more than one-to-one compensation for inflation. As a result, long-term Treasury bonds have been no less attractive for taxable investors in 2016 (with a 1.0% post-tax real yield) than they were in 2006 (0.5%), 1976 (–1.7%), 1966 (0.9%), and 1956 (0.8%), although they have been less attractive than they were in 1996 (2.4%) and 1986 (2.9%). Short-term Treasury bond yields have been on the low side but have also not been particularly unusual.

JEL-codes: E0 E21 G0 G12 H0 H2 H24 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-mac
Note: AP IFM
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