 r* and the global economyJournal of International Money and Finance, 2020, vol. 102, issue C Abstract: This paper provides a synthesis of explanations for why the natural rate of interest, r*, has fallen over the last several decades. Demographic factors, declining productivity, slower output growth, and increasing inequality likely all have been important factors. Perhaps less recognized is the role of increasing global demand for safe assets, particularly by foreign investors. Suggestive empirical evidence is presented showing that foreign demand for U.S. safe assets, particularly government-provided assets, has increased dramatically, and may now be playing a much larger role in the determination of U.S. interest rates than in the past. In addition, the buildup before the 2007–2009 financial crisis of quasi-government and privately-supplied safe assets, held by both domestic and foreign investors, rendered the financial system more vulnerable to shocks that adversely affected the perceived degree of “safeness” they provided. Keywords: Natural interest rate; Neutral rate; R-star; Safe assets; Saving; Investment; Asset preferences; Foreign asset holdings; Monetary policy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:102:y:2020:i:c:s0261560619305881 DOI: 10.1016/j.jimonfin.2019.102105 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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