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Real Interest Rate and Growth Rate: Theory and Empirical Evidence

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  • Jean-Marie Le Page

    (UP2 - Université Panthéon-Assas)

Abstract

This study presents an assessment of the links between the real interest rate and the growth rate. In the first part of the paper we recall the theoretical foundations of these links. In the second part, we compare empirical data with the predictions of the theory. The real interest rate should exceed the growth rate in the long run. This hierarchy has important consequences on the public finances. The Solow-Ramsey-Cass model fits better to the data than the endogenous growth theory. Furthermore, the Sixties and Seventies have been a time of transitory dynamics with real interest rates lower than the growth rates.

Suggested Citation

  • Jean-Marie Le Page, 2011. "Real Interest Rate and Growth Rate: Theory and Empirical Evidence," Post-Print hal-04009851, HAL.
    • Handle: RePEc:hal:journl:hal-04009851
    Note: View the original document on HAL open archive server: https://hal.science/hal-04009851
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    real interest rate growth rate time preference rate productivity of capital debt burden JEL classification: E22 E43 E44 O41; real interest rate; growth rate; time preference rate; productivity of capital; debt burden JEL classification: E22; E43; E44; O41;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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