Global real rates: a secular approach

Pierre-Olivier Gourinchas and Helene Rey

No 793, BIS Working Papers from Bank for International Settlements

Abstract: The current environment is characterized by low real rates and by policy rates close to or at their effective lower bound in all major €nancial areas. We analyze these unusual economic conditions from a secular perspective using data on aggregate consumption, wealth and asset returns. Our present-value approach decomposes fluctuations in the global consumption-to-wealth ratio over long periods of time and show that this ratio anticipates future movements of the global real risk-free rate. Our analysis identifies two historical episodes where the consumption-to-wealth ratio declined rapidly below its historical average: in the roaring 1920s and again in the exuberant 2000s. Each episode was followed by a severe global €financial crisis and depressed real rates for an extended period of time. Our empirical estimates suggest that the world real rate of interest is likely to remain low or negative for an extended period of time.

Keywords: real interest rates; consumption-wealth ratio; financial boom-bust cycle (search for similar items in EconPapers)
JEL-codes: E21 E40 E43 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2019-07
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Working Paper: Global Real Rates: A Secular Approach (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:793

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