by Summary:
In a (December 2015) Bank of England Staff Working Paper, Lukasz Rachel and Thomas Smith dissect the global decline in long-term real interest rates over the last thirty years. A summary of their executive summary: Market measures of long-term risk-free real interest rates have declined by around 450bps. Absent signs of overheating this suggests that the global neutral rate fell. Expected trend growth as well as other factors affecting desired savings and investment determine the neutral rate. Global growth was fairly steady before the crisis but may (be expected to) fall after the financial crisis. Recently, slower labor supply (demographics) and productivity growth may account for a 100bps decline in the real rate. Desired savings rose, due to demographics (90bps), higher within
Topics:
Dirk Niepelt considers the following as important: *, Demographics, Interest Rate, Investment, Notes, Productivity, Real interest rate, Saving, secular stagnation, Technological progress
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In a (December 2015) Bank of England Staff Working Paper, Lukasz Rachel and Thomas Smith dissect the global decline in long-term real interest rates over the last thirty years. A summary of their executive summary: Market measures of long-term risk-free real interest rates have declined by around 450bps. Absent signs of overheating this suggests that the global neutral rate fell. Expected trend growth as well as other factors affecting desired savings and investment determine the neutral rate. Global growth was fairly steady before the crisis but may (be expected to) fall after the financial crisis. Recently, slower labor supply (demographics) and productivity growth may account for a 100bps decline in the real rate. Desired savings rose, due to demographics (90bps), higher within
Topics:
Dirk Niepelt considers the following as important: *, Demographics, Interest Rate, Investment, Notes, Productivity, Real interest rate, Saving, secular stagnation, Technological progress
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In a (December 2015) Bank of England Staff Working Paper, Lukasz Rachel and Thomas Smith dissect the global decline in long-term real interest rates over the last thirty years.
A summary of their executive summary:
- Market measures of long-term risk-free real interest rates have declined by around 450bps.
- Absent signs of overheating this suggests that the global neutral rate fell.
- Expected trend growth as well as other factors affecting desired savings and investment determine the neutral rate.
- Global growth was fairly steady before the crisis but may (be expected to) fall after the financial crisis. Recently, slower labor supply (demographics) and productivity growth may account for a 100bps decline in the real rate.
- Desired savings rose, due to demographics (90bps), higher within country inequality (45bps), and higher savings rates in emerging markets following the Asian crisis (25bps).
- Desired investment fell, due to a lower relative price of capital goods (50bps) and less public investment (20bps).
- The spread between the return on capital and the risk-free rate rose (70bps).
- These trends look likely to persist and the “global neutral real rate may settle at or slightly below 1% over the medium- to long-run”.
From page 2 of the paper:
See also the summary by James Hamilton; the White House CEA report; and the 17th Geneva report.