Selection, Patience, and the Interest Rate

Radoslaw Stefanski and Alex Trew

Journal of Political Economy Macroeconomics, 2024, vol. 2, issue 1, 149 - 181

Abstract: The interest rate has been falling for centuries. A process of natural selection that leads to increasing societal patience is key to explaining this decline. Three observations support this mechanism: patience varies across individuals, is intergenerationally persistent, and is positively related to fertility. A calibrated dynamic, heterogeneous-agent model of fertility permits us to isolate the quantitative contribution of this mechanism. We find that selection alone is the key to explaining the decline of the interest rate.

Date: 2024
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