OECD countries: If inflation does not return and interest rates remain low, could there be a crisis (a recession)?
Will the very low interest rates made possible by the absence of inflation in OECD countries stave off a crisis or recession for good? We assume that both inflation and interest rates remain low for a long time. In the short term, there will not be any crisis or a recession, since the low interest rates maintain the solvency of all economic agents, even those with a high debt ratio; But in the long term, sustained low interest rates (the refusal to “lean against the windâ€) could lead to a crisis if there are asset price bubbles that burst not because of a rise in interest rates but simply because of the size of the bubble. Very low interest rates may therefore protect against a crisis in the short term but cause one in the long term.