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Perspectiveson Low Global Interest Rates

Author

Listed:
  • Luis Catão
  • George A Mackenzie

Abstract

This paper looks at the dramatic decline in global real interest rates in recent years from a historical perspective and examines the various factors that may account for this trend. We show that current levels of real interest rates on long-term bonds in advanced economies are not low by historical standards and that it is the real long bond rates of the early 1980s through much of the 1990s that look anomalous. We also find that current global long-term interest rates are roughly in line with what one would predict given current price-earnings (P/E) ratios and under reasonable assumptions about the equity risk premia and the expected rate of growth of earnings in advanced countries. Finally, we provide econometric evidence that global long-term interest rates are significantly affected by commodity prices, expected productivity growth, and fiscal consolidation in advanced countries.

Suggested Citation

  • Luis Catão & George A Mackenzie, 2006. "Perspectiveson Low Global Interest Rates," IMF Working Papers 06/76, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:06/76
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    References listed on IDEAS

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    1. Robert J. Barro & Xavier Sala-i-Martin, 1990. "World Real Interest Rates," NBER Chapters,in: NBER Macroeconomics Annual 1990, Volume 5, pages 15-74 National Bureau of Economic Research, Inc.
    2. Luis A. V. Catão, 2007. "Sudden Stops and Currency Drops: A Historical Look," NBER Chapters,in: The Decline of Latin American Economies: Growth, Institutions, and Crises, pages 243-290 National Bureau of Economic Research, Inc.
    3. Olivier J. Blanchard, 1993. "Movements in the Equity Premium," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 75-138.
    4. Arturo Estrella, 2005. "Why Does the Yield Curve Predict Output and Inflation?," Economic Journal, Royal Economic Society, vol. 115(505), pages 722-744, July.
    5. repec:mes:challe:v:33:y:1990:i:2:p:59-59 is not listed on IDEAS
    6. Robert B. Barsky & J. Bradford De Long, 1991. "Forecasting Pre-World War I Inflation: The Fisher Effect and the Gold Standard," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 815-836.
    7. Sebastian Edwards, 1995. "Why are Saving Rates so Different Across Countries?: An International Comparative Analysis," NBER Working Papers 5097, National Bureau of Economic Research, Inc.
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    Cited by:

    1. World Bank, 2014. "Raising Botswana's Human Resource Profile to Facilitate Economic Diversification and Growth," World Bank Other Operational Studies 21078, The World Bank.
    2. Bruno Ducoudré, 2006. "Politique monetaire, inertie des taux longs Americains et choix de portefeuille," Documents de Travail de l'OFCE 2006-09, Observatoire Francais des Conjonctures Economiques (OFCE).
    3. Manmohan S. Kumar & David Hauner, 2006. "Fiscal Policy and Interest Rates; How Sustainable Is The “New Economy”?," IMF Working Papers 06/112, International Monetary Fund.
    4. Andrzej Toroj, 2009. "Macroeconomic adjustment and heterogeneity in the euro area," NBP Working Papers 54, Narodowy Bank Polski, Economic Research Department.
    5. Guy M Meredith, 2007. "Debt Dynamics and Global Imbalances; Some Conventional Views Reconsidered," IMF Working Papers 07/4, International Monetary Fund.
    6. Bruno Ducoudre, 2008. "Structure par terme des taux d’intérêt et anticipations de la politique économique," Sciences Po publications info:hdl:2441/5221, Sciences Po.

    More about this item

    Keywords

    Economic models; Investment; Savings; World interest rates; global saving; bond; inflation; real interest rates; real interest rate; bonds; International Finance: General;

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