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World Real Interest Rates: A Global Savings and Investment Perspective

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Author Info
Brigitte Desroches
Michael Francis

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Abstract

Over the past 15 years, long-term interest rates have declined to levels not seen since the 1970s. This paper explores possible shifts in global savings and investment that have led to this fall in the world real interest rate. There are several key findings. First, the authors identify the relative weakness in investment demand as more important than the relative increase in desired global savings to explain the decline in global interest rates. Second, the results indicate that the key factors explaining movements in savings and investment are variables that evolve relatively slowly over time, such as labour force growth and age structure. The conclusions suggest that over the coming years, world real interest rates are likely to continue to adjust slowly, reflecting longterm trends.

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File URL: http://www.bankofcanada.ca/en/res/wp/2007/wp07-16.pdf
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Paper provided by Bank of Canada in its series Working Papers with number 07-16.

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Length: 29 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:bca:bocawp:07-16

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Related research
Keywords: Interest rates; International topics;

Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
F3 - International Economics - - International Finance

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Sebastian Edwards, 1995. "Why are Saving Rates so Different Across Countries?: An International Comparative Analysis," NBER Working Papers 5097, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. James M. Poterba, 2004. "The impact of population aging on financial markets," Proceedings, Federal Reserve Bank of Kansas City, issue Aug, pages 163-216. [Downloadable!]
    Other versions:
  3. Brigitte Desroches & Michael Francis, 2006. "Global Savings, Investment, and World Real Interest Rates," Bank of Canada Review, Bank of Canada, vol. 2006(Winter), pages 3-17. [Downloadable!]
  4. Barro, R.J. & Martin, X.S., 1990. "World Real Interest Rates," RCER Working Papers 227, University of Rochester - Center for Economic Research (RCER).
    Other versions:
  5. Rose, Andrew Kenan, 1988. " Is the Real Interest Rate Stable?," Journal of Finance, American Finance Association, vol. 43(5), pages 1095-1112, December. [Downloadable!] (restricted)
  6. Breedon, Francis & Henry, Brian & Williams, Geoffrey, 1999. "Long-Term Real Interest Rates: Evidence on the Global Capital Market," Oxford Review of Economic Policy, Oxford University Press, vol. 15(2), pages 128-42, Summer.
  7. Gagnon, Joseph E & Unferth, Mark D, 1995. "Is there a world real interest rate?," Journal of International Money and Finance, Elsevier, vol. 14(6), pages 845-855, December. [Downloadable!] (restricted)
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  8. Bordo, Michael D & Jeanne, Olivier, 2002. "Monetary Policy and Asset Prices: Does 'Benign Neglect' Make Sense?," International Finance, Blackwell Publishing, vol. 5(2), pages 139-64, Summer. [Downloadable!] (restricted)
    Other versions:
  9. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
  10. Bruce Little & Robert Lafrance, 2006. "Global Imbalances-Just How Dangerous?," Bank of Canada Review, Bank of Canada, vol. 2006(Spring), pages 3-13. [Downloadable!]
  11. Gilchrist, Simon & Leahy, John V., 2002. "Monetary policy and asset prices," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 75-97, January. [Downloadable!] (restricted)
  12. Rudiger Ahrend & Pietro Catte & Robert Price, 2006. "Factors Behind Low Long-Term Interest Rates," OECD Economics Department Working Papers 490, OECD, Economics Department. [Downloadable!]
  13. Mishkin, Frederic S., 1981. "The real interest rate: An empirical investigation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 151-200, January. [Downloadable!] (restricted)
    Other versions:
  14. Jappelli, Tullio & Pagano, Marco, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 83-109, February. [Downloadable!] (restricted)
    Other versions:
  15. Garcia, Rene & Perron, Pierre, 1996. "An Analysis of the Real Interest Rate under Regime Shifts," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 111-25, February. [Downloadable!] (restricted)
    Other versions:
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