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Nominal and real interest rates in OECD countries, changes in sight after covid-19?

Author

Listed:
  • Claude Bismut

    (Montpellier University)

  • Ismaël Ramajo

    (DARES – MAE)

Abstract

In this article we seek to gain a better understanding of the decline in interest rates observed over the long term and we ask whether this trend is likely to stop or even reverse as a result of the covid crisis. For this, we introduce a model that combines an intertemporal framework and a price adjustment process. This model makes it possible to derive a testable relationship between observable macroeconomic variables. Tests carried out on a panel of 19 OECD countries confirm the influence of factors suggested by the theoretical model, in particular, the link between the fall in the interest rate and the economic slowdown. The covid episode is analyzed as a mixed shock of supply and demand. The exit from the covid crisis could be accompanied by a rebound, but rising real interest rates are not the most likely scenario.

Suggested Citation

  • Claude Bismut & Ismaël Ramajo, 2021. "Nominal and real interest rates in OECD countries, changes in sight after covid-19?," International Economics and Economic Policy, Springer, vol. 18(3), pages 493-516, July.
    • Handle: RePEc:kap:iecepo:v:18:y:2021:i:3:d:10.1007_s10368-021-00514-5
    DOI: 10.1007/s10368-021-00514-5
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    References listed on IDEAS

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