September 2022 issue contents
Why So Low for So Long? A Long-Term View of Real Interest Rates

Claudio Borioa, Piti Disyatatb, Mikael Juseliusc and Phurichai Rungcharoenkitkula

Abstract

Prevailing explanations of the long-term decline in real interest rates are premised on the notion that real interest rates over long periods are driven by variations in the underlying real forces governing desired saving and investment. Based on long historical data stretching back to 1870 for 19 countries, we cast doubt on this view. While it is possible to find some relationships consistent with the theory in some periods, particularly over the last 30 years, they do not survive over the extended sample. This holds both at the national and at the global level. Among external factors, interest rates of financially dominant countries appear important in explaining real interest rates across countries, pointing to the possible role of global financial factors.

JEL Code: E32, E40, E44, E50, E52.

 
Full article (PDF, 41 pages)

Online appendix (PDF, 40 pages)


a  Bank for International Settlements
b  Bank of Thailand
c  Bank of Finland