2008-2016 with low interest rates/money printing- why didn’t we get high inflation during that time period? ‘because low interest rates don’t necessarily mean inflation’ ok but can you go into it a bit further than that? What made it different than 2020?

Question

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In: Economics

Answer 1

So, to be honest… my understanding is that we honestly don’t really know for sure….

This was a huge fear back in 08/09 when the era of ultra low rates started, but it was an economic crisis and we needed low rates to get though it, however the inflation never materialized.

I believe the leading theory is that since the 08 recession was a financial crisis, the next decade was a long period of people and companies paying off debts and improving their balance sheets meaning there wasn’t the demand in the economy needed to drive inflation as any extra $ was going to pay down debts. The following decade spent improving balance sheets and the $ that was injected into the economy post COVID meant that today most businesses and households have good balance sheets and are now spending $ on goods and services rather than paying down debts, stoking inflation.

However economists will probably be looking at the whole time period for a long time trying to understand just what happened then and what changed in 2020 for a long time. Similar to how the Great Depression has been an area that has also had a lot of academic research.

For reference- this policy was also called ZIRP

https://en.wikipedia.org/wiki/Zero_interest-rate_policy