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Decomposing the drivers of Global R*

Ambrogio Cesa-Bianchi (), Richard Harrison () and Rana Sajedi

No 990, Bank of England working papers from Bank of England

Abstract: We use a structural overlapping-generations model to quantify the effects of five exogenous forces that drive the global trend equilibrium real interest rate, Global R*. We use data for 31 countries to extract the global trend components of the five drivers and to derive an empirical estimate of Global R*, which we use to calibrate the model. We design a recursive simulation method in which beliefs about the future path of the drivers are updated gradually. In our simulation, Global R* rises from the mid-1950s to the mid-1970s, declining steadily thereafter. The decline is driven predominantly by slowing productivity growth and increasing longevity.

Keywords: Equilibrium interest rates; structural change; demographics (search for similar items in EconPapers)
JEL-codes: E22 E43 J11 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2022-07-12
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-mon
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