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Real Interest Rates over the Long Run

Author

Listed:
  • Kei-Mu Yi
  • Jing Zhang

Abstract

Long-term interest rates have a crucial influence on virtually all major financial decisions faced by households, businesses and governments. This paper reviews several decades of data on long-term rates internationally, explores several factors that determine them and discusses implications of this evidence. {{p}} The data indicate declining long-term rates since the 1980s, converging internationally at very low levels. This implies that the rate decline is not due to the Great Recession or to the early 2000s downturn. It further suggests a higher likelihood than before of hitting the zero bound on nominal interest rates as well as sustained rate convergence as global financial integration proceeds. {{p}} Furthermore, evidence of a downward trend in global fixed investment, coupled with the main finding of declining long-term interest rates, suggests that forces leading to declining global investment demand may be more important than those leading to increased saving in explaining current trends in long-term rates.

Suggested Citation

  • Kei-Mu Yi & Jing Zhang, 2016. "Real Interest Rates over the Long Run," Economic Policy Paper 16-10, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmep:16-10
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    References listed on IDEAS

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    2. Jean-Marc Natal & Nicolas Stoffels, 2019. "Globalization, Market Power, and the Natural Interest Rate," IMF Working Papers 2019/095, International Monetary Fund.
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    4. Karen Dynan, 2018. "Adapting tax systems for population aging," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 53(2), pages 66-71, April.

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