Drivers of long-term global interest rates – can weaker growth explain the fall?

Authors: Lukasz Rachel and Thomas Smith.

Long-term real interest rates have fallen substantially over the past thirty years.  The co-movement in real rates across both advanced and emerging economies suggests a common driver is at work – the global neutral rate may have fallen.  In this two-part blog post we attempt to identify which secular trends could have driven such a fall.  In Part 1 we highlight how weaker expectations for global trend growth can account for around 100bps of the 450bps fall in real rates since the 1980s.  But this effect seems to mainly apply to the post-crisis period – suggesting other factors are responsible for the protracted decline before the crisis.
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