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Why Are Interest Rates So Low?

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  • John, Tatom

Abstract

Interest rates have been unusually low in this decade. Some prominent analysts have suggested that this is due to a saving glut, especially in China. A more likely source of the lower real interest rate level is a fall in the demand for capital goods and its financing. This article looks at whether capital spending and its financing have been weak, possibly accounting for declining real interest rates. It shows that private investment has been weak by historical standards; and this has probably reflected low rates of return to global investment, as well as significant changes in the prices of capital goods relative to other goods and services. The implications of these developments are very different and also different from the excess saving hypothesis.

Suggested Citation

  • John, Tatom, 2006. "Why Are Interest Rates So Low?," MPRA Paper 17752, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:17752
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    References listed on IDEAS

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    1. repec:fip:fedgsq:y:2005:i:mar10 is not listed on IDEAS
    2. Ben S. Bernanke, 2005. "The global saving glut and the U.S. current account deficit," Speech 77, Board of Governors of the Federal Reserve System (U.S.).
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    More about this item

    Keywords

    interest rates; saving; capital formation;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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