IDEAS home Printed from https://ideas.repec.org/p/gla/glaewp/2023_01.html

Selection, Patience and the Interest Rate (version January 2023)

Author

Listed:
  • Radoslaw (Radek) Stefanski
  • Alex Trew

Abstract

The interest rate has been steadily falling for centuries. A process of selection that leads to increasing societal patience is key to explaining this decline. Three observations point to the potential role of this mechanism: patience varies across individuals, patience is inter-generationally persistent, and patience is positively related to fertility. A calibrated dynamic, heterogenous-agent model of fertility permits us to isolate the quantitative contribution of this mechanism. Selection can explain most of the decline in the interest rate over seven centuries, a fact that is robust to a number of model extensions. Quantitative implications are consistent with other facts, such as the steady increase in the investment rate since 1300.

Suggested Citation

  • Radoslaw (Radek) Stefanski & Alex Trew, 2023. "Selection, Patience and the Interest Rate (version January 2023)," Working Papers 2023_01, Business School - Economics, University of Glasgow.
    • Handle: RePEc:gla:glaewp:2023_01
    as

    Download full text from publisher

    File URL: https://www.gla.ac.uk/media/Media_910029_smxx.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Tamura, Robert, 1996. "From decay to growth: A demographic transition to economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 20(6-7), pages 1237-1261.
    2. Levy, Moshe, 2015. "An evolutionary explanation for risk aversion," Journal of Economic Psychology, Elsevier, vol. 46(C), pages 51-61.
    3. Michael F. Lovenheim & Kevin J. Mumford, 2013. "Do Family Wealth Shocks Affect Fertility Choices? Evidence from the Housing Market," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 464-475, May.
    4. Doepke, M. & Tertilt, M., 2016. "Families in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1789-1891, Elsevier.
    5. Gaya Herrington, 2021. "Update to limits to growth: Comparing the World3 model with empirical data," Journal of Industrial Ecology, Yale University, vol. 25(3), pages 614-626, June.
    6. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-247, April.
    7. Melissa S. Kearney & Riley Wilson, 2018. "Male Earnings, Marriageable Men, and Nonmarital Fertility: Evidence from the Fracking Boom," The Review of Economics and Statistics, MIT Press, vol. 100(4), pages 678-690, October.
    8. Broadberry, Stephen & Wallis, John Joseph, 2025. "Growing, Shrinking, and Long-Run Economic Performance: Historical Perspectives on Economic Development," The Journal of Economic History, Cambridge University Press, vol. 85(2), pages 505-540, June.
    9. David de la Croix & Eric B. Schneider & Jacob Weisdorf, 2019. "Childlessness, celibacy and net fertility in pre-industrial England: the middle-class evolutionary advantage," Journal of Economic Growth, Springer, vol. 24(3), pages 223-256, September.
    10. Gregory Clark & Neil Cummins & Matthew Curtis, 2020. "Twins Support the Absence of Parity-Dependent Fertility Control in Pretransition Populations," Demography, Springer;Population Association of America (PAA), vol. 57(4), pages 1571-1595, August.
    11. Galor, Oded, 2005. "From Stagnation to Growth: Unified Growth Theory," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 4, pages 171-293, Elsevier.
    12. Robson, Arthur J., 1996. "A Biological Basis for Expected and Non-expected Utility," Journal of Economic Theory, Elsevier, vol. 68(2), pages 397-424, February.
    13. Allen, Robert C., 2001. "The Great Divergence in European Wages and Prices from the Middle Ages to the First World War," Explorations in Economic History, Elsevier, vol. 38(4), pages 411-447, October.
    14. Allen M. Featherstone & Timothy G. Baker, 1987. "An Examination of Farm Sector Real Asset Dynamics: 1910–85," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(3), pages 532-546.
    15. Robert A. Becker, 1980. "On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(2), pages 375-382.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Radoslaw Stefanski & Alex Trew, 2022. "Selection, Patience, and the Interest Rate (updated 2023)," Working Papers 2022_08, Business School - Economics, University of Glasgow.
    2. repec:gla:glaewp:2020-03 is not listed on IDEAS
    3. Dimico, Arcangelo, 2024. "The Effect of Abortion Policies on Fertility and Human Capital in Sub-Saharan Africa," QBS Working Paper Series 2024/06, Queen's University Belfast, Queen's Business School.
    4. Luciano Fanti, 2009. "Longevity, fertility and Demographic Transition in an OLG model," Economics Bulletin, AccessEcon, vol. 29(1), pages 347-356.
    5. Abebe HAILEMARIAM, 2024. "Income and differential fertility: evidence from oil price shocks," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 90(1), pages 31-54, March.
    6. 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.
    7. Radoslaw Stefanski & Alex Trew, 2020. "Selection, Patience, and the Interest Rate," Discussion Paper Series, School of Economics and Finance 202002, School of Economics and Finance, University of St Andrews, revised 23 Jul 2021.
    8. Radoslaw (Radek) Stefanski & Alex Trew, 2020. "Patience Breeds Interest: The Rise of Societal Patience and the Fall of the Risk-free Interest Rate," Working Papers 2020-03, Business School - Economics, University of Glasgow.
    9. Elgin, Ceyhun, 2012. "A Theory Of Economic Development With Endogenous Fertility," Macroeconomic Dynamics, Cambridge University Press, vol. 16(5), pages 686-705, November.
    10. Ranganathan, Shyam & Bali Swain, Ranjula & Sumpter, David, 2014. "A Dynamical Systems Approach To Modeling Human Development," Working Paper Series 2014:9, Uppsala University, Department of Economics.
    11. Bassino, Jean-Pascal & Broadberry, Stephen & Fukao, Kyoji & Gupta, Bishnupriya & Takashima, Masanori, 2019. "Japan and the great divergence, 730–1874," Explorations in Economic History, Elsevier, vol. 72(C), pages 1-22.
    12. Hersh, Jonathan & Voth, Hans-Joachim, 2022. "Sweet diversity: Colonial goods and the welfare gains from global trade after 1492," Explorations in Economic History, Elsevier, vol. 86(C).
    13. Broadberry Stephen, 2012. "Recent Developments in the Theory of Very Long Run Growth: A Historical Appraisal," Jahrbuch für Wirtschaftsgeschichte / Economic History Yearbook, De Gruyter, vol. 53(1), pages 277-306, May.
    14. Meissner, Christopher M., 2014. "Growth from Globalization? A View from the Very Long Run," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 8, pages 1033-1069, Elsevier.
    15. Broadberry, Stephen & Ghosal, Sayantan & Proto, Eugenio, 2017. "Anonymity, efficiency wages and technological progress," Journal of Development Economics, Elsevier, vol. 127(C), pages 379-394.
    16. Kasey Buckles & Daniel Hungerman & Steven Lugauer, 2021. "Is Fertility a Leading Economic Indicator?," The Economic Journal, Royal Economic Society, vol. 131(634), pages 541-565.
    17. Bergoña Álvarez & Fernando Ramos Palencia, 2016. "The Role of human capital in pre-industrial societies: skills and earnings in eighteenth-century Castile (Spain)," Working Papers 0099, European Historical Economics Society (EHES).
    18. Osea Giuntella & Lorenzo Rotunno & Luca Stella, 2021. "Trade Shocks, Fertility, and Marital Behavior," SOEPpapers on Multidisciplinary Panel Data Research 1126, DIW Berlin, The German Socio-Economic Panel (SOEP).
    19. Jianchoun Dou, 2021. "Variety, Fertility, and Long-term Economic Growth," LIDAM Discussion Papers IRES 2021020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    20. Oded Galor & Stelios Michalopoulos, 2006. "Darwinian Evolution of Entrepreneurial Spirit and the Process of Development," Working Papers 2006-12, Brown University, Department of Economics.
    21. Thomas Seegmuller & Stefano Bosi, 2010. "Mortality Differential, Labor Taxation And Growth: What Do We Learn From The Barro-Becker Model?," Working Papers halshs-00472732, HAL.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gla:glaewp:2023_01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Business School Research Team (email available below). General contact details of provider: https://edirc.repec.org/data/dpglauk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.