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Selection, Patience, and the Interest Rate (updated 2023)

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  • Radoslaw Stefanski
  • Alex Trew

Abstract

The interest rate has been falling for centuries. A process of natural selection that leads to increasing societal patience is key to explaining this decline. Three observations support this mechanism: patience varies across individuals, is inter-generationally persistent, and is positively related to fertility. A calibrated dynamic, heterogenous-agent model of fertility permits us to isolate the quantitative contribution of this mechanism. Selection can explain most of the decline in the interest rate, a fact that is robust to a number of model extensions. Quantitative implications are consistent with other facts, such as the steady increase in the investment rate since 1300.

Suggested Citation

  • Radoslaw Stefanski & Alex Trew, 2022. "Selection, Patience, and the Interest Rate (updated 2023)," Working Papers 2022_08, Business School - Economics, University of Glasgow.
    • Handle: RePEc:gla:glaewp:2022_08
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    More about this item

    Keywords

    Interest rates; selection; fertility; patience; heterogenous agents;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • N30 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - General, International, or Comparative
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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