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Some International Evidence on Inequality, Demographics, and Long-term Interest Rates

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Abstract

Using a cross-country panel spanning the years 1980-2019, we provide empirical evidence on the relationship between inequality, demographics, and declining long-term interest rates in OECD countries. Since the early 1980s, the OECD average long-term nominal interest rate has declined by 11%. We find that rising life expectancy can account for 3.15% of this decline, while rising inequality can account for 1.04%. We construct a real rate measure and find similar conclusions regarding the role of demographics versus inequality. Our evidence suggests that both inequality and demographics are relevant for delcining long-term interest rates.

Suggested Citation

  • Joshua Brault & Hashmat Khan, 2021. "Some International Evidence on Inequality, Demographics, and Long-term Interest Rates," Carleton Economic Papers 21-10, Carleton University, Department of Economics, revised 16 Dec 2021.
    • Handle: RePEc:car:carecp:21-10
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    References listed on IDEAS

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    1. Madsen, Jakob B. & Islam, Md. Rabiul & Doucouliagos, Hristos, 2018. "Inequality, financial development and economic growth in the OECD, 1870–2011," European Economic Review, Elsevier, vol. 101(C), pages 605-624.
    2. Holston, Kathryn & Laubach, Thomas & Williams, John C., 2017. "Measuring the natural rate of interest: International trends and determinants," Journal of International Economics, Elsevier, vol. 108(S1), pages 59-75.
    3. Thomas Laubach & John C. Williams, 2003. "Measuring the Natural Rate of Interest," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1063-1070, November.
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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
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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