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Demographic Transition and Low U.S. Interest Rates

Carlos Carvalho, Andrea Ferrero and Fernanda Nechio

FRBSF Economic Letter, 2017

Abstract: Interest rates have been trending down for more than two decades. One possible explanation is the dramatic worldwide demographic transition, with people living longer and population growth rates declining. This demographic transition in the United States?particularly the steady increase in life expectancy?put significant downward pressure on interest rates between 1990 and 2016. Because demographic movements tend to be long-lasting, their ongoing effects could keep interest rates near the lower bound longer. This has the potential to limit the scope for central banks to respond to future recessionary shocks.

Date: 2017
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