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Low Long-Term Interest Rates - An alternative View

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  • Stefan Behrendt

    (Friedrich Schiller University Jena, School of Economics and Business Administration)

Abstract

The fall in risk free interest rates since the 1980s has mostly been described as being induced by factors that push down interest rates from the demand side. This paper contributes to the literature by adding a view of the supply side, namely that interest has to be earned first, before it can be distributed. Consequently, interest can only sustainably be distributed from the added value in a given period. But through higher debt ratios today, a smaller amount of added value can be used to fund interest payments than in the past. In such an environment, average interest rates can only be held stable, if the nominal amount of interest paid is rising, which would then lead to lower income for labour and/or a lower reward for entrepreneurs in the form of corporate profits and dividends. But labour and entrepreneurial income did not fall as much as would be needed to compensate for the much higher amount of interest bearing assets since the 1980s. The only logical consequence then is a fall in average interest rates.

Suggested Citation

  • Stefan Behrendt, 2017. "Low Long-Term Interest Rates - An alternative View," Jena Economic Research Papers 2017-001, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2017-001
    as

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    File URL: http://www2.wiwi.uni-jena.de/Papers/jerp2017/wp_2017_001.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Secular stagnation; low interest rates;

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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