Eight Centuries of Global Real Interest Rates, R-G, and the ‘Suprasecular’ Decline, 1311–2018

110 Pages Posted: 17 Jan 2020

See all articles by Paul Schmelzing

Paul Schmelzing

Harvard University; Yale School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: January 10, 2020

Abstract

With recourse to archival, printed primary, and secondary sources, this paper reconstructs global real interest rates on an annual basis going back to the 14th century, covering 78% of advanced economy GDP over time. I show that across successive monetary and fiscal regimes, and a variety of asset classes, real interest rates have not been ‘stable’, and that since the major monetary upheavals of the late middle ages, a trend decline between 0.6–1.6 basis points per annum has prevailed. A gradual increase in real negative-yielding rates in advanced economies over the same horizon is identified, despite important temporary reversals such as the 17th Century Crisis. Against their long-term context, currently depressedbsovereign real rates are in fact converging ‘back to historical trend’ — a trend that makes narratives about a ‘secular stagnation’ environment entirely misleading, and suggests that — irrespective of particular monetary and fiscal responses — real rates could soon enter permanently negative territory. I also posit that the return data here reflects a substantial share of ‘non-human wealth’ over time: the resulting R-G series derived from this data show a downward trend over the same timeframe: suggestions about the ‘virtual stability’ of capital returns, and the policy implications advanced by Piketty (2014) are in consequence equally unsubstantiated by the historical record.

Keywords: real rate history, financial history, historical R-G, 13th–21st centuries

JEL Classification: E40, G12, N10, N20

Suggested Citation

Schmelzing, Paul, Eight Centuries of Global Real Interest Rates, R-G, and the ‘Suprasecular’ Decline, 1311–2018 (January 10, 2020). Bank of England Working Paper No. 845, January 2020, Available at SSRN: https://ssrn.com/abstract=3520654 or http://dx.doi.org/10.2139/ssrn.3520654

Paul Schmelzing (Contact Author)

Harvard University ( email )

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Yale School of Management ( email )

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