Structural change, global R* and the missing-investment puzzle

Andrew Bailey (), Ambrogio Cesa-Bianchi, Marco Garofalo, Richard Harrison, Nick McLaren, Rana Sajedi and Sophie Piton
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Andrew Bailey: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 997, Bank of England working papers from Bank of England

Abstract: The world has undergone substantial structural change over recent decades, with profound implications for the long-run policy landscape. We focus on two key trends. First, the secular decline in risk-free interest rates, suggesting a fall in the long-run global equilibrium interest rate, Global R*. Using a structural model, we find that declining productivity growth and increasing longevity played the largest roles in explaining this fall. The second trend is the recorded weakness in investment, despite an increasing wedge between the return on capital and the risk-free rate. We use industry-level data for the United Kingdom to investigate the potential structural factors behind this ‘missing-investment puzzle’, and find a strong role for intangible capital.

Keywords: Structural change; equilibrium interest rates; investment (search for similar items in EconPapers)
JEL-codes: E22 E43 J11 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2023-01-23
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0997

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