Perspectives on Low Global Interest Rates

31 Pages Posted: 17 May 2006

See all articles by Luis Catão

Luis Catão

International Monetary Fund (IMF)

George A. (Sandy) Mackenzie

Independent

Date Written: March 2006

Abstract

This paper looks at the dramatic decline in global real interest rates in recent years from a historical perspective and examines the various factors that may account for this trend. We show that current levels of real interest rates on long-term bonds in advanced economies are not low by historical standards and that it is the real long bond rates of the early 1980s through much of the 1990s that look anomalous. We also find that current global long-term interest rates are roughly in line with what one would predict given current price-earnings (P/E) ratios and under reasonable assumptions about the equity risk premia and the expected rate of growth of earnings in advanced countries. Finally, we provide econometric evidence that global long-term interest rates are significantly affected by commodity prices, expected productivity growth, and fiscal consolidation in advanced countries.

Keywords: World interest rates, global saving, investment

JEL Classification: E43, F30

Suggested Citation

Catão, Luis and Mackenzie, George A. (Sandy), Perspectives on Low Global Interest Rates (March 2006). IMF Working Paper No. 06/76, Available at SSRN: https://ssrn.com/abstract=901867

Luis Catão (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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