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Rents, Technical Change, and Risk Premia: Accounting for Secular Trends in Interest Rates, Returns on Capital, Earning Yields, and Factor Shares

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  • Ricardo J. Caballero
  • Emmanuel Farhi
  • Pierre-Olivier Gourinchas

Abstract

The secular decline in safe interest rates since the early 1980s has been the subject of considerable attention. In this short paper, we argue that it is important to consider the evolution of safe real rates in conjunction with three other first-order macroeconomic stylized facts: the relative constancy of the real return to productive capital, the decline in the labor share, and the decline and subsequent stabilization of the earnings yield. Through the lens of a simple accounting framework, these four facts offer insights into the economic forces that might be at work.

Suggested Citation

  • Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2017. "Rents, Technical Change, and Risk Premia: Accounting for Secular Trends in Interest Rates, Returns on Capital, Earning Yields, and Factor Shares," NBER Working Papers 23127, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23127
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    References listed on IDEAS

    as
    1. Duarte, Fernando M. & Rosa, Carlo, 2015. "The equity risk premium: a review of models," Economic Policy Review, Federal Reserve Bank of New York, issue 2, pages 39-57.
    2. David Autor & David Dorn & Lawrence F. Katz & Christina Patterson & John Van Reenen, 2017. "Concentrating on the Fall of the Labor Share," American Economic Review, American Economic Association, vol. 107(5), pages 180-185, May.
    3. repec:oup:qjecon:v:132:y:2017:i:3:p:1373-1426. is not listed on IDEAS
    4. Koh, Dongya; Santaeulàlia-Llopis, Raül; Zheng, Yu, 2015. "Labor share decline and intellectual property products capital," Economics Working Papers ECO2015/05, European University Institute.
    5. David López-Salido & Jeremy C. Stein & Egon Zakrajšek, 2017. "Credit-Market Sentiment and the Business Cycle," The Quarterly Journal of Economics, Oxford University Press, vol. 132(3), pages 1373-1426.
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    Citations

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    Cited by:

    1. German Gutierrez, 2018. "Investigating Global Labor and Pro t Shares," 2018 Meeting Papers 165, Society for Economic Dynamics.
    2. David Baqaee & Emmanuel Farhi, 2018. "Productivity and Misallocation in General Equilibrium," 2018 Meeting Papers 357, Society for Economic Dynamics.
    3. David Rezza Baqaee & Emmanuel Farhi, 2017. "Productivity and Misallocation in General Equilibrium," NBER Working Papers 24007, National Bureau of Economic Research, Inc.
    4. repec:nbr:nberch:14088 is not listed on IDEAS
    5. Sophie Piton, 2018. "Do Unit Labor Costs Matter? A Decomposition Exercise on European Data," PSE Working Papers halshs-01785345, HAL.
    6. Loukas Karabarbounis & Brent Neiman, 2018. "Accounting for Factorless Income," NBER Chapters,in: NBER Macroeconomics Annual 2018, volume 33 National Bureau of Economic Research, Inc.
    7. Sophie Piton, 2017. "Economic Integration and the Non-tradable Sector: The European Experience," 2017 Papers ppi361, Job Market Papers.
    8. repec:aea:jecper:v:31:y:2017:i:3:p:29-46 is not listed on IDEAS
    9. Germán Gutiérrez & Thomas Philippon, 2017. "Declining Competition and Investment in the U.S," NBER Working Papers 23583, National Bureau of Economic Research, Inc.
    10. Alexius, Annika, 2017. "Why are real interest rates so low? Evidence from a structural VAR with sign restrictions," Research Papers in Economics 2017:6, Stockholm University, Department of Economics.
    11. Sophie Piton, 2018. "Do Unit Labor Costs Matter? A Decomposition Exercise on European Data," 2018 Meeting Papers 1072, Society for Economic Dynamics.
    12. Charles Goodhart & Manoj Pradhan, 2017. "Demographics will reverse three multi-decade global trends," BIS Working Papers 656, Bank for International Settlements.
    13. Juan Passadore & Facundo Piguillem & Adriana Grasso, 2017. "Rising Capital Shares, Risk Taking and The Secular Stagnation," 2017 Meeting Papers 1513, Society for Economic Dynamics.
    14. Ricardo J. Caballero & Alp Simsek, 2017. "A Risk-centric Model of Demand Recessions and Macroprudential Policy," NBER Working Papers 23614, National Bureau of Economic Research, Inc.
    15. repec:nbb:ecrart:y:2017:m:september:i:ii:p:69-86 is not listed on IDEAS
    16. Monica Amici & Emmanuele Bobbio & Roberto Torrini, 2017. "Patterns of convergence (divergence) in the euro area: profitability versus cost and price indicators," Questioni di Economia e Finanza (Occasional Papers) 415, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • G1 - Financial Economics - - General Financial Markets

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