Chapter 2Puzzles

The 2008 financial crisis has left “structural impediments” in the economic landscape. Relationships between inflation, unemployment, productivity, and growth have broken down. As a result, their effect on interest rates has changed, too. This has many academics, policymakers, and investors ponder how this is possible. There are several “puzzles” that seem structural in nature. They play a role in determining the level of risk-free rates. In addition, economic risks continue to linger because imbalances between countries remain large. These economic risks have changed the nature of how major advanced economies’ sovereign risk is judged. For investors, it is relevant to understand the nature of economic risks and puzzles. The ...

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