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Rents, Technical Change, and Risk Premia: Accounting for Secular Trends in Interest Rates, Returns to Capital, Earnings Yields

Author

Listed:
  • Farhi, Emmanuel
  • Gourinchas, Pierre-Olivier
  • Caballero, Ricardo

Abstract

The secular decline in safe interest rates since the early 1980s has been the subject of considerable attention. In this short paper, we argue that it is important to consider the evolution of safe real rates in conjunction with three other first-order macroeconomic stylized facts: the relative constancy of the real return to productive capital, the decline in the labor share, and the decline and subsequent stabilization of the earnings yield. Through the lens of a simple accounting framework, these four facts offer suggestive insights into the economic forces that might be at work.

Suggested Citation

  • Farhi, Emmanuel & Gourinchas, Pierre-Olivier & Caballero, Ricardo, 2017. "Rents, Technical Change, and Risk Premia: Accounting for Secular Trends in Interest Rates, Returns to Capital, Earnings Yields," CEPR Discussion Papers 11833, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11833
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    References listed on IDEAS

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    5. Ricardo J Caballero & Emmanuel Farhi, 2018. "The Safety Trap," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(1), pages 223-274.
    6. Kevin Daly, 2016. "A Secular Increase in the Equity Risk Premium," International Finance, Wiley Blackwell, vol. 19(2), pages 179-200, June.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Labor share; Rents; Risk premia; Technical change; Automation;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G1 - Financial Economics - - General Financial Markets

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