Working Paper: NBER ID: w30024
Authors: N. Gregory Mankiw
Abstract: This essay discusses the reasons for and implications of the decline in real interest rates around the world over the past several decades. It suggests that the decline in interest rates is largely explicable from trends in saving, growth, and markups. In this environment, greater government debt is likely not problematic from a budgetary standpoint. But a Ponzi-like scheme of perpetual debt rollover might fail, and such a failure would make an already-bad state of the world even worse. In addition, even if a perpetual debt rollover succeeds, the increased debt could still crowd out capital, reducing labor productivity, real wages, and consumption.
Keywords: No keywords provided
JEL Codes: E13; E22; E62; H41; H63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher saving rates (D14) | lower real interest rates (E43) |
| lower growth rates (O49) | lower real interest rates (E43) |
| higher saving rates and lower growth rates (E21) | lower real interest rates (E43) |
| government can manage debt sustainably through perpetual rollover (H63) | potential crowding out of capital (E22) |