Must-Read: Interest Rates: Natural or Artificial?: "Ben Bernanke... central banks are simply reacting to economic conditions rather than driving the interest rate...:
...There are, however, those who have a very different interpretation... see... interest rates as being artificially low and forced on us by central banks... causing bubbles, imbalances, hurting savers and being the seed of the future crisis... John Taylor.... The first question is how can central banks be seen as so powerful as to control and distort a market price for such a long period of time?... Those who tend to support this view are... critical of models with price rigidities. So on hand they dislike models where central banks are powerful, and on the other hand they argue that central banks have been super powerful over the last 10 or 15 years. This is very inconsistent.
The second question is how can it be that such a low level of artificially low interest rates has not had any effect on inflation.... Once again, not sure what model can explain this. Finally... interest rates are low at a global level.... What type of coordination exists between all central banks in the world to keep artificially low interest rates everywhere without generating inflation anywhere?... Very difficult to square with a world where the US Federal Reserve is keeping interest rates artificially low for many years.