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Global Real Rates: A Secular Approach

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  • Gourinchas, Pierre-Olivier
  • Rey, Hélène
  • Sauzet, Maxime

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 financial 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

  • Gourinchas, Pierre-Olivier & Rey, Hélène & Sauzet, Maxime, 2022. "Global Real Rates: A Secular Approach," CEPR Discussion Papers 16941, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:16941
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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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    2. 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.
    3. 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.
    4. Brand, Claus & Goy, Gavin W & Lemke, Wolfgang, 2020. "Natural rate chimera and bond pricing reality," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224546, Verein für Socialpolitik / German Economic Association.
    5. Knolle, Julia, 2020. "Prosperity in a Low Interest Environment," MPRA Paper 104332, University Library of Munich, Germany.
    6. 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.
    7. Goto, Eiji, 2023. "International comovement of r∗: A case study of the G7 countries," Journal of Empirical Finance, Elsevier, vol. 74(C).
    8. Chen, Chuanglian & Liu, Xiaobin & Yu, Jun & Zeng, Tao, 2025. "The time-varying zone-like and asymmetric preference of central banks: Evidence from China," China Economic Review, Elsevier, vol. 94(PA).
    9. 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.
    10. Brand, Claus & Goy, Gavin W & Lemke, Wolfgang, 2020. "Natural rate chimera and bond pricing reality," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224546, Verein für Socialpolitik / German Economic Association.
    11. Fernandez-Gallardo, Alvaro, 2023. "Preventing financial disasters: Macroprudential policy and financial crises," European Economic Review, Elsevier, vol. 151(C).
    12. Corina-Florentina Scarlat (Mihai), 2022. "The Evolution And Sustainability Of Public Debt In The E.U. Member States," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 3, pages 115-127, June.
    13. Kathryn Holston & Thomas Laubach & John C. Williams, 2023. "Measuring the Natural Rate of Interest after COVID-19," Staff Reports 1063, Federal Reserve Bank of New York.
    14. Thomas Mayer & Gunther Schnabl, 2019. "Reasons for the Demise of Interest: Savings Glut and Secular Stagnation or Central Bank Policy?," CESifo Working Paper Series 7954, CESifo.
    15. Konstantina Manou & Evangelia Papapetrou, 2025. "Does uncertainty matter for household consumption? A mean and a two tails approach," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 49(4), pages 909-941, December.
    16. Stolyarov, Dmitriy & Tesar, Linda L., 2021. "Interest rate trends in a global context," Economic Modelling, Elsevier, vol. 101(C).

    More about this item

    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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