Globalization, Market Power, and the Natural Interest Rate

26 Pages Posted: 14 Jun 2019

Date Written: May 2019


We argue that strong globalization forces have been an important determinant of globalreal interest rates over the last five decades, as they have been key drivers of changes inthe natural real interest rate-i.e. the interest rate consistent with output at its potentialand constant inflation. An important implication of our analysis is that increasedcompetition in goods and labor market since the 1970s can help explain both the largeincrease in real interest rates up to the mid-1980s and-as globalization forces mature andmay even go into reverse, leading to incrementally rising market power-its subsequentand protracted decline accompanied by lower inflation. The analysis has importantimplications for monetary policy and the optimal pace of normalization.

Keywords: Real interest rates, Market interest rates, Economic integration, Interest rates, Total factor productivity, low interest rate puzzle, globalization, natural interest rate, markups, real interest rate, markup, interest rate, global integration, productivity growth

JEL Classification: D43, D58, E17, E43, E44, E52, F62, E01, G21, E2, H

Suggested Citation

Natal, Jean-Marc and Stoffels, Nicolas, Globalization, Market Power, and the Natural Interest Rate (May 2019). IMF Working Paper No. 19/95, Available at SSRN:

Jean-Marc Natal (Contact Author)

Swiss National Bank ( email )

Borsenstrasse 15
CH-8022 Zurich

Nicolas Stoffels

Swiss National Bank ( email )

Economic Affairs
Boersenstrasse 15
Zurich, 8022
+41 44 631 3424 (Phone)
+41 44 631 3901 (Fax)

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