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Determinants of global neutral interest rates

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  • Ferreira, Thiago R.T.
  • Shousha, Samer

Abstract

We provide a comprehensive account of the determinants of global longer-run neutral interest rates—the real component of policy interest rates consistent with both economic activity and inflation at their longer-run trends. Using a cross-country model for 11 advanced economies in the 1960–2019 period, we simultaneously account for productivity, demographics, global supply of safe assets, demand factors for safe assets, and global spillovers faced by each economy from the rest of the world’s developments. We find two main results: safe asset supply is a major determinant of neutral rates, with its positive contribution since 2008 counteracting negative contributions from many other determinants, and global spillovers are important determinants of neutral rates’ trajectories and co-movements.

Suggested Citation

  • Ferreira, Thiago R.T. & Shousha, Samer, 2023. "Determinants of global neutral interest rates," Journal of International Economics, Elsevier, vol. 145(C).
    • Handle: RePEc:eee:inecon:v:145:y:2023:i:c:s0022199623001198
    DOI: 10.1016/j.jinteco.2023.103833
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    Keywords

    Longer-run neutral interest rates; Safe assets; Global spillovers;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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