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Selection, Patience, and the Interest Rate (updated 2023 2023_01)

Author

Listed:
  • Radoslaw (Radek) Stefanski
  • Alex Trew

Abstract

The interest rate has been falling for centuries. The key to explaining this decline is increasing societal patience, driven by a process of natural selection. Three observations support this mechanism: patience varies across individuals, is inter-generationally persistent, and is positively related to fertility. To establish the importance of this channel, we introduce a dynamic, heterogeneous-agent model of fertility. The structure of our model enables us to use modern, micro level data to calibrate the historical distribution of patience. Our quantitative results match the centuries-long fall in the interest rate, highlighting the crucial role of selection in this historical, and ongoing, trend.

Suggested Citation

  • Radoslaw (Radek) Stefanski & Alex Trew, 2021. "Selection, Patience, and the Interest Rate (updated 2023 2023_01)," Working Papers 2020_03, Business School - Economics, University of Glasgow.
    • Handle: RePEc:gla:glaewp:2020_03
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    References listed on IDEAS

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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
    • N30 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - General, International, or Comparative
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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