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New Evidence for a Lower New Normal in Interest Rates

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  • Jens H. E. Christensen
  • Glenn D. Rudebusch

Abstract

Interest rates during the current economic recovery have been unusually low. Some have argued that yields have been pushed down by declines in longer-run expectations of the normal inflation-adjusted short-term interest rate?that is, by a drop in the so-called equilibrium or natural rate of interest. New evidence from financial markets shows that a decline in this rate has indeed contributed about 2 percentage points to the general downward trend in yields over the past two decades.

Suggested Citation

  • Jens H. E. Christensen & Glenn D. Rudebusch, 2017. "New Evidence for a Lower New Normal in Interest Rates," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00140
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    References listed on IDEAS

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    1. Jens H. E. Christensen & Jose A. Lopez & Glenn D. Rudebusch, 2010. "Inflation Expectations and Risk Premiums in an Arbitrage-Free Model of Nominal and Real Bond Yields," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 143-178, September.
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    Cited by:

    1. Robert C. M. Beyer & Lazar Milivojevic, 2023. "Dynamics and synchronization of global equilibrium interest rates," Applied Economics, Taylor & Francis Journals, vol. 55(28), pages 3195-3214, June.
    2. Neri, Stefano & Gerali, Andrea, 2019. "Natural rates across the Atlantic," Journal of Macroeconomics, Elsevier, vol. 62(C).
    3. Glick, Reuven, 2020. "r* and the global economy," Journal of International Money and Finance, Elsevier, vol. 102(C).
    4. Kábrt, Tomáš & Brůna, Karel, 2022. "Asymmetric effects of foreign capital on income inequality: The case of the Post-China 16 countries," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 613-626.

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