Real Interest Rate and Growth Rate: Theory and Empirical Evidence
AbstractThis study presents an assessment of the links between the real interest rate and the growth rate. In the first part of the paper we recall the theoretical foundations of these links. In the second part, we compare empirical data with the predictions of the theory. The real interest rate should exceed the growth rate in the long run. This hierarchy has important consequences on the public finances. The Solow-Ramsey-Cass model fits better to the data than the endogenous growth theory. Furthermore, the Sixties and Seventies have been a time of transitory dynamics with real interest rates lower than the growth rates.
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Bibliographic InfoArticle provided by SKEMA Business School in its journal Frontiers in Finance and Economics.
Volume (Year): 8 (2011)
Issue (Month): 2 (October)
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real interest rate; growth rate; time preference rate; productivity of capital; debt burden;
Find related papers by JEL classification:
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
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