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World real interest rates: a global savings and investment perspective

  • Brigitte Desroches
  • Michael Francis

Over the past 15 years, long-term interest rates have declined to levels not seen since the 1970s. This article 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 long-term trends.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840801964690
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 42 (2010)
Issue (Month): 22 ()
Pages: 2801-2816

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Handle: RePEc:taf:applec:v:42:y:2010:i:22:p:2801-2816
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  1. Jappelli, Tullio & Pagano, Marco, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 83-109, February.
  2. 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.
  3. 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.
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    • Robert J. Barro & Xavier Sala-i-Martin, 1990. "World Real Interest Rates," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 15-74 National Bureau of Economic Research, Inc.
  7. Bordo, Michael D & Jeanne, Olivier, 2002. "Monetary Policy and Asset Prices: Does 'Benign Neglect' Make Sense?," International Finance, Wiley Blackwell, vol. 5(2), pages 139-64, Summer.
  8. Mishkin, Frederic S, 1984. " Are Real Interest Rates Equal across Countries? An Empirical Investigation of International Parity Conditions," Journal of Finance, American Finance Association, vol. 39(5), pages 1345-57, December.
  9. James Poterba, 2004. "The Impact of Population Aging on Financial Markets," NBER Working Papers 10851, National Bureau of Economic Research, Inc.
  10. 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.
  11. 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.
  12. Rose, Andrew Kenan, 1988. " Is the Real Interest Rate Stable?," Journal of Finance, American Finance Association, vol. 43(5), pages 1095-1112, December.
  13. Marc-André Gosselin & René Lalonde, 2005. "MUSE: The Bank of Canada's New Projection Model of the U.S. Economy," Technical Reports 96, Bank of Canada.
  14. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, August.
  15. Olivier J. Blanchard & Lawrence H. Summers, 1984. "Perspectives on High World Real Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 273-334.
  16. Rudiger Ahrend & Pietro Catte & Robert W.R. Price, 2006. "Factors Behind Low Long-Term Interest Rates," OECD Economics Department Working Papers 490, OECD Publishing.
  17. Bruce Little & Robert Lafrance, 2006. "Global Imbalances-Just How Dangerous?," Bank of Canada Review, Bank of Canada, vol. 2006(Spring), pages 3-13.
  18. Gilchrist, Simon & Leahy, John V., 2002. "Monetary policy and asset prices," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 75-97, January.
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