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Factors Behind Low Long-Term Interest Rates

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Author Info

  • Rudiger Ahrend
  • Pietro Catte
  • Robert W.R. Price

Abstract

Long-term bond yields have been low in recent years both in nominal and real terms, and . especially in the United States - they have reacted differently to shifts in monetary and fiscal stances relative to previous cycles. This article examines various possible explanations for this behaviour, such as the effects of changes in monetary policy frameworks on inflation and interest rate expectations; developments in ex ante saving-investment balances, and shifts in investors. portfolio preferences (including official reserve accumulation, .petro-dollar. recycling and pension fund demand for longer maturities). The paper finds that it is unlikely that any individual explanation can account for the level and profile of bond yields in recent years, but that an important element has been a compression in term premia, together with shifts in expected short rates. Even though bond yields have started to rise in the early part of 2006, they are unlikely to go back to the levels that prevailed in the 1980s or the early 1990s, as several of the factors that drove them lower are set to persist. Éléments à l'origine de la faiblesse des taux d'intérêt à long terme Au cours des années récentes les rendements des obligations à long terme ont été faibles tant en termes nominaux qu’effectifs. Par rapport aux cycles économiques antérieurs, ils ont réagi différemment aux changements de politique monétaire et budgétaire, notamment aux États-Unis. Cet article examine plusieurs explications potentielles de ces comportements comme les effets d’un changement de cadre de la politique monétaire sur l’inflation et les anticipations de taux d’intérêt; l’évolution des soldes ex ante d’épargne et d’investissement et les changements de préférence dans les placements des investisseurs (y compris l’accumulation des réserves officielles, le recyclage des « pétrodollars » et la demande des fonds de pension pour des obligations à maturité longue). L’article conclut qu’il est improbable qu’une seule explication puisse rendre compte du niveau et du profil des rendements obligataires au cours des dernières années. Toutefois, un élément clef a été la réduction de la prime de risque, accompagnée par des changements dans les anticipations de taux d’intérêt à court terme. Néanmoins, bien que les rendements des obligations aient commencé à remonter au début de l’année 2006, il est peu vraisemblable qu’ils atteignent les niveaux enregistrés dans les années 1980 et au début des années 1990, dans la mesure où plusieurs des facteurs qui ont entraîné leur déclin sont amenés à perdurer.

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 490.

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Date of creation: 13 Jun 2006
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Handle: RePEc:oec:ecoaaa:490-en

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Keywords: financial markets; capital flows; credibility; monetary policy; risk premia; current account; portfolio preferences; bond spread ; pension fund; term premia; neutral rate; inflation expectation; saving-investment balance; interest rate; bond yield; reserve accumulation ; petro-dollar; pétrodollar; accumulation des réserves; rendement des obligations; taux d'intérêt; solde d'épargne et d'investissement; préférences en matière de placements; spread de crédit; fonds de pension; politique monétaire; prime de risque; compte courant; prime à terme; taux neutre; anticipation d'inflation; flux de capitaux; crédibilité; marchés financiers;

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Cited by:
  1. Clerc, L., 2007. "Understanding Asset Prices: Determinants and Policy Implications," Working papers 168, Banque de France.
  2. Goknur Umutlu & Yilmaz Yildız, 2011. "The Effect of Global Liquidity on Macroeconomic Parameters," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 1(3), pages 167-181, September.
  3. Hermann Remsperger & Markus Taube & Berend Diekmann & Carsten Hermann-Pillath & Rüdiger Ahrend, 2007. "Welche Konsequenzen hat Chinas wachsender Einfluss auf die Weltwirtschaft?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 60(13), pages 03-19, 07.
  4. Ahrend, Rudiger, 2010. "Monetary ease: A factor behind financial crises? Some evidence from OECD countries," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 4(12), pages 1-30.
  5. Brigitte Desroches & Michael Francis, 2007. "World Real Interest Rates: A Global Savings and Investment Perspective," Working Papers 07-16, Bank of Canada.
  6. Rudiger Ahrend & Boris Cournède & Robert W.R. Price, 2008. "Monetary Policy, Market Excesses and Financial Turmoil," OECD Economics Department Working Papers 597, OECD Publishing.

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