scholarly journals Why are Real Interest Rates so Low? Secular Stagnation and the Relative Price of Investment Goods

2015 ◽  
Author(s):  
Gregory Thwaites
Keyword(s):  
Interest Rates ◽  
Relative Price ◽  
Real Interest Rates ◽  
Secular Stagnation ◽  
Investment Goods

scholarly journals Secular Stagnation: The Long View

2015 ◽  
Vol 105 (5) ◽  
pp. 66-70 ◽  
Author(s):  
Barry Eichengreen
Keyword(s):  
Population Growth ◽  
Productivity Growth ◽  
Economic History ◽  
Relative Price ◽  
Secular Stagnation ◽  
Investment Goods

Four explanations for secular stagnation are distinguished: a rise in global saving, slow population growth that makes investment less attractive, adverse trends in technology and productivity growth, and a decline in the relative price of investment goods. A long view from economic history is most supportive of the last of these four views.

Secular Stagnation, Growth, and Real Interest Rates

2016 ◽  
Vol 64 (4) ◽  
pp. 575-580 ◽  
Author(s):  
Pierre-Olivier Gourinchas ◽  
Richard Portes ◽  
Pau Rabanal
Keyword(s):  
Interest Rates ◽  
Real Interest Rates ◽  
Secular Stagnation

Rising prices are not a long-run UK economy risk

2021 ◽  
Keyword(s):  
Interest Rates ◽  
Relative Price ◽  
Real Interest Rates ◽  
Content Type ◽  
The Past ◽  
Price Adjustments ◽  
Long Run ◽  
The Future ◽  
High Inflation ◽  
The Uk

Significance There is little risk that inflation will return to heights seen in the 1980s as the authorities have the tools to control high inflation. However, their effective deployment depends on cooperation between the BoE and Her Majesty's Treasury (HM Treasury -- the finance ministry). Impacts The long-run demographic forces that kept real interest rates low in the past will continue to keep them low in the future. Low real rates and little risk of high inflation mean nominal rates will also remain low. Moderate inflation in the range 0-5% can be expected over the next decade. A dose of moderate inflation will be useful for the UK economy as it will ease the relative price adjustments needed during the recovery.

The causes and challenges of low interest rates: insights from basic principles and recent literature

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Youchang Wu
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Relative Price ◽  
Downward Trend ◽  
Real Interest Rates ◽  
Basic Principles ◽  
Content Type ◽  
Economic Forces ◽  
Rate Environment

PurposeWhat causes the downward trend of real interest rates in major developed economies since the 1980s? What are the challenges of the near-zero interest and inflation rates for monetary policy? What can the policymakers learn from the latest developments in the monetary and interest rate theory? This paper aims to answer these questions by reviewing both basic principles of interest rate determination and recent academic and policy debates.Design/methodology/approachThe paper critically reviews the explanations for the downward trend of real interest rates in recent decades and monetary policy options in a near-zero interest rate environment.FindingsThe decline of real interest rates is likely an outcome of multiple technological, social and economic factors including diminished productivity growth, changing demographics, elevated tail-risk concerns, time-varying convenience yields of safe assets, increased global demand for safe assets, rising wealth and income inequality, falling relative price of capital, accommodative monetary policies, and changes in industry structure that alter the investment and saving behaviors of the corporate sector. The near-zero interest rate limits the space of central banks' response to economic crises. It also challenges some conventional wisdoms of monetary theory and sparks radically new ideas about monetary policy.Originality/valueThis survey differs from the existing work by taking a broader view of both economics and finance literature. It critically assesses the economic forces driving the global decline of real interest rates through the lens of basic principles and empirical evidence and discusses the merits and limitations of each proposed explanation. The study emphasizes the importance of a better understanding of economic forces driving diverging trends of corporate investment and saving behaviors. It also discusses the implications of the neo-Fisherism and the fiscal theory of price level for monetary policy in a low interest rate environment.

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