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Global real rates: a secular approach

Author

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  • Pierre-Olivier Gourinchas
  • Hélène Rey

Abstract

The current environment is characterized by low real rates and by policy rates close to or at their effective lower bound in all major €nancial areas. We analyze these unusual economic conditions from a secular perspective using data on aggregate consumption, wealth and asset returns. Our present-value approach decomposes fluctuations in the global consumption-to-wealth ratio over long periods of time and show that this ratio anticipates future movements of the global real risk-free rate. Our analysis identifies two historical episodes where the consumption-to-wealth ratio declined rapidly below its historical average: in the roaring 1920s and again in the exuberant 2000s. Each episode was followed by a severe global €financial crisis and depressed real rates for an extended period of time. Our empirical estimates suggest that the world real rate of interest is likely to remain low or negative for an extended period of time.

Suggested Citation

  • Pierre-Olivier Gourinchas & Hélène Rey, 2019. "Global real rates: a secular approach," BIS Working Papers 793, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:793
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. What's in store for r*?
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2020-11-24 13:15:29

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    Cited by:

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    3. Brand, Claus & Goy, Gavin & Lemke, Wolfgang, 2025. "Estimating the natural rate of interest in a macro-finance yield curve model," Working Paper Series 3160, European Central Bank.
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    5. Andrey Sinyakov & Alexey Porshakov, 2019. "Estimates of the Natural Rate of Interest for Russia: Is 'Navigating by the Stars' Useful?," Russian Journal of Money and Finance, Bank of Russia, vol. 78(4), pages 3-47, December.
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    10. Michele Catalano & Emilia Pezzolla, 2022. "Global natural projections," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(4), pages 949-990, November.
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    Keywords

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    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
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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