Low Real Rates as Driver of Secular Stagnation: Empirical Assessment

22 Pages Posted: 23 Oct 2014 Last revised: 17 Nov 2014

See all articles by Jan Willem van den End

Jan Willem van den End

De Nederlandsche Bank

Marco Hoeberichts

De Nederlandsche Bank - Research Department

Date Written: October 22, 2014

Abstract

We empirically test whether there is a causal link between the real interest rate and the natural rate of interest, which could be a harbinger of secular stagnation if the real rate declines. Outcomes of VAR models for Japan, Germany and the US show that a fall in the real rate indeed affects the natural rate. This causality is significant for Japan, borderline significant for Germany and not significant for the US. The outcomes for Japan confirm that a prolonged period of low real rates can affect potential economic growth. The policy implication is that implementing measures that raise the natural rate will be more effective in avoiding secular stagnation than reducing the real rate through higher inflation expectations.

Keywords: interest rates, financial markets and the macroeconomy, monetary policy

JEL Classification: E43, E44, E52

Suggested Citation

van den End, Jan Willem and Hoeberichts, Marco M., Low Real Rates as Driver of Secular Stagnation: Empirical Assessment (October 22, 2014). De Nederlandsche Bank Working Paper No. 444. Available at SSRN: https://ssrn.com/abstract=2513696 or http://dx.doi.org/10.2139/ssrn.2513696

Jan Willem van den End (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Marco M. Hoeberichts

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands
+31-20-524 2890 (Phone)
+31-20-524 2529 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
63
Abstract Views
435
rank
360,830
PlumX Metrics