IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/4113.html
   My bibliography  Save this paper

Why Have Interest Rates Been So Low?

Author

Listed:
  • Tatom, John

Abstract

This paper looks at interest rate developments in the US and argues that long-term 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

  • Tatom, John, 2007. "Why Have Interest Rates Been So Low?," MPRA Paper 4113, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:4113
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/4113/1/MPRA_paper_4113.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    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.).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Giancarlo Bertocco, 2014. "Global Saving Glut and Housing Bubble: A Critical Analysis," Economia politica, Società editrice il Mulino, issue 2, pages 195-218.
    2. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michael G. Plummer, 2012. "Regional Monitoring of Capital Flows and Coordination of Financial Regulation: Stakes and Options for Asia," Chapters, in: Masahiro Kawai & David G. Mayes & Peter Morgan (ed.), Implications of the Global Financial Crisis for Financial Reform and Regulation in Asia, chapter 8, Edward Elgar Publishing.
    2. Ansgar Belke & Daniel Gros, 2014. "A simple model of an oil based global savings glut—the “China factor”and the OPEC cartel," International Economics and Economic Policy, Springer, vol. 11(3), pages 413-430, September.
    3. G. Peersman & W. Wagner, 2014. "Shocks to Bank Lending, Risk-Taking, Securitization, and their Role for U.S. Business Cycle Fluctuations," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/874, Ghent University, Faculty of Economics and Business Administration.
    4. Del Negro, Marco & Giannone, Domenico & Giannoni, Marc P. & Tambalotti, Andrea, 2019. "Global trends in interest rates," Journal of International Economics, Elsevier, vol. 118(C), pages 248-262.
    5. Carmen M. Reinhart & Takeshi Tashiro, 2013. "Crowding out redefined: the role of reserve accumulation," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages 1-43.
    6. Fratianni, Michele & Giri, Federico, 2017. "The tale of two great crises," Journal of Economic Dynamics and Control, Elsevier, vol. 81(C), pages 5-31.
    7. Sposi, Michael, 2022. "Demographics and the evolution of global imbalances," Journal of Monetary Economics, Elsevier, vol. 126(C), pages 1-14.
    8. Neri, Stefano & Gerali, Andrea, 2019. "Natural rates across the Atlantic," Journal of Macroeconomics, Elsevier, vol. 62(C).
    9. Can Xu & Jan P. A. M. Jacobs & Jakob de Haan, 2023. "Does Household Borrowing Reduce the Trade Balance? Evidence from Developing and Developed Countries," Open Economies Review, Springer, vol. 34(4), pages 759-787, September.
    10. Vladimir Asriyan & Dana Foarta & Victoria Vanasco, 2023. "The Good, the Bad, and the Complex: Product Design with Imperfect Information," American Economic Journal: Microeconomics, American Economic Association, vol. 15(2), pages 187-226, May.
    11. Malmendier, Ulrike & Pouzo, Demian & Vanasco, Victoria, 2020. "Investor experiences and international capital flows," Journal of International Economics, Elsevier, vol. 124(C).
    12. Cubizol, Damien, 2018. "Transition and capital misallocation: the Chinese case," Journal of International Money and Finance, Elsevier, vol. 81(C), pages 88-115.
    13. D.D. Evans, Martin, 2017. "External balances, trade and financial conditions," Journal of International Economics, Elsevier, vol. 107(C), pages 165-184.
    14. Zhang, Haiping, 2022. "Upstream financial flows, intangible investment, and allocative efficiency," Journal of Macroeconomics, Elsevier, vol. 72(C).
    15. Pedro Gete, 2015. "Housing demands, savings gluts and current account dynamics," Globalization Institute Working Papers 221, Federal Reserve Bank of Dallas.
    16. Faia, Ester & Iliopulos, Eleni, 2011. "Financial openness, financial frictions and optimal monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 35(11), pages 1976-1996.
    17. Davis, Leila & de Souza, Joao & Kim, YK. & Rella, Giacomo, 2023. "What are firms borrowing for? The role of financial assets," Economic Modelling, Elsevier, vol. 125(C).
    18. Reinhart, Carmen M. & Reinhart, Vincent & Rogoff, Kenneth, 2015. "Dealing with debt," Journal of International Economics, Elsevier, vol. 96(S1), pages 43-55.
    19. Florian Brugger, 2015. "Asia’s Reserve Accumulation: Part of a New Paradigm," Working Paper Series, Social and Economic Sciences 2015-03, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
    20. Engel, Charles, 2020. "Safe U.S. Assets and U.S. Capital Flows," Journal of International Money and Finance, Elsevier, vol. 102(C).

    More about this item

    Keywords

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

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:4113. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.