Rethinking Short-Term Real Interest Rates and Term Spreads Using Very Long-Run Data

Kenneth Rogoff, Barbara Rossi and Paul Schmelzing

No 20790, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Utilizing critical recent data advances, we analyze short-maturity real interest rates as well as term spreads based on conceptually consistent multi-century data. In contrast to an extensive literature the past few decades, we find strong evidence of trend stationarity in long horizon series, relatively fast adjustment speeds, and a paucity of structural breaks — results that survive out of sample tests. Our evidence runs contrary to consensus in the literature that long-run r* is permanently lower post-financial crisis. Relatedly, we show that term spreads are secularly rising while inflation volatility falls — a finding questioning some influential term structure models.

JEL-codes: E4 F3 N20 (search for similar items in EconPapers)
Date: 2025-10
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