Demographic Trends and the Real Interest Rate

56 Pages Posted: 7 Mar 2018

See all articles by Noëmie Lisack

Noëmie Lisack

European University Institute

Rana Sajedi

Bank of England

Gregory Thwaites

Bank of England - Monetary Analysis

Date Written: December 21, 2017

Abstract

We quantify the impact of past and future global demographic change on real interest rates, house prices and household debt in an overlapping generations model. Falling birth and death rates can explain a large part of the fall in world real interest rates and the rise in house prices and household debt since the 1980s. These trends will persist as the share of the population in the high-wealth 50 age bracket continues to rise. As the United States ages relatively slowly, its net foreign liability position will grow. The availability of housing and debt as alternative stores of value attenuates these trends. The increasing monopolisation of the economy has ambiguous effects.

Keywords: Demographics, population ageing, neutral interest rates

JEL Classification: E13, E21, E43, J11

Suggested Citation

Lisack, Noëmie and Sajedi, Rana and Thwaites, Gregory, Demographic Trends and the Real Interest Rate (December 21, 2017). Bank of England Working Papers No. 701, Available at SSRN: https://ssrn.com/abstract=3135233 or http://dx.doi.org/10.2139/ssrn.3135233

Noëmie Lisack

European University Institute ( email )

No Address Available, Tuscany

Rana Sajedi (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Gregory Thwaites

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

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