Why have interest rates fallen far below the return on capital?
Magali Marx (),
Benoit Mojon () and
Francois Velde ()
Journal of Monetary Economics, 2021, vol. 124, issue S, S57-S76
Interest rates have been falling since the mid-1980s while the return on capital has not. In a calibrated OLG model with recursive preferences encompassing many of the “usual suspects” cited in the debate on secular stagnation, we find that lower trend growth accounts for the trends in the US and the euro area real rates. The increase in the risk premia reflects two sets of forces. Bonds have become better hedges for stocks, notably in the euro area, and risk aversion has increased. In our model, changes in labor share, longevity and inequality had negligible effects on interest rates.
Keywords: Risk-free rate; Return on capital; Secular stagnation (search for similar items in EconPapers)
JEL-codes: E21 E22 E43 E66 G12 (search for similar items in EconPapers)
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Working Paper: Why have interest rates fallen far below the return on capital (2019)
Working Paper: Why Have Interest Rates Fallen Far Below the Return on Capital (2018)
Working Paper: Why Have Interest Rates Fallen far Below the Return on Capital (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:124:y:2021:i:s:p:s57-s76
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