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Why Have Interest Rates Been So Low?

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  • John A. Tatom

Abstract

This paper looks at interest rate developments in the US and argues that longterm real interest rates are at lows not seen in the past 50 years. It explores competing hypotheses that there is a global saving glut, there is conundrum or that global capital formation has slowed. The dominant view is a glut of saving, especially in China and Asia, that is depressing global real interest rates and boosting growth. While private sector capital formation remains at historic strong levels in the US, the same is not the case abroad. Unfortunately strong saving in China had not resulted in a boom in saving in Asia or globally. A decline in global capital formation is the proximate cause of depressed real interest rates. This is not a cyclical problem that is likely to go away with a rebound in economic activity in Asia or Europe. The implications for economic growth are dismal, despite notable exceptions in China and the US.

Suggested Citation

  • John A. Tatom, 2007. "Why Have Interest Rates Been So Low?," NFI Working Papers 2007-WP-13, Indiana State University, Scott College of Business, Networks Financial Institute.
    • Handle: RePEc:nfi:nfiwps:2007-wp-13
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    File URL: http://www.indstate.edu/business/sites/business.indstate.edu/files/Docs/2007-WP-13_Tatom.pdf
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    Cited by:

    1. Harm Bandholz & Jorg Clostermann & Franz Seitz, 2009. "Explaining the US bond yield conundrum," Applied Financial Economics, Taylor & Francis Journals, vol. 19(7), pages 539-550.
    2. Giancarlo Bertocco, 2014. "Global Saving Glut and Housing Bubble: A Critical Analysis," Economia politica, Società editrice il Mulino, issue 2, pages 195-218.

    More about this item

    Keywords

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    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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