Working Paper: CEPR ID: DP18518
Authors: Ambrogio Cesabianchi; Richard Harrison; Rana Sajedi
Abstract: This paper develops a structural model to study the global trend real interest rate, "Global R*". We focus on five potential drivers: productivity growth, population growth, longevity, government debt, and the relative price of capital. We employ a recursive simulation method in which beliefs about long-run trends are updated gradually. The simulations are guided by estimates of the global trend component of each driver derived from a panel dataset of 31 countries from 1950 to 2020. Global R* rises until the mid-1970s before declining by around 3 percentage points. The decline is driven by slowing productivity growth and increasing longevity.
Keywords: long-run interest rates; structural change; macroeconomic policy
JEL Codes: E22; E43; E60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher productivity growth (O49) | global r (F62) |
| higher population growth (J11) | global r (F62) |
| falling productivity growth (O49) | global r (F62) |
| increasing longevity (D15) | global r (F62) |
| government debt (H63) | global r (F62) |
| relative price of capital (D33) | global r (F62) |