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The Need for Very Low Interest Rates in an Era of Subdued Investment Spending

Thomas Klitgaard and Harry Wheeler

No 20170322, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Why have interest rates stayed low for so long after the financial crisis?and will they remain low for the foreseeable future? One way to answer these questions is to use the accounting identity that global saving must equal physical investment spending and argue that low rates have been necessary to prop up investment spending enough to match saving. From this perspective, the extent of any recovery in interest rates depends on whether weak investment spending is driven primarily by secular demographic trends that are a long-term drag on aggregate demand or by the residual effects of the financial crisis.

Keywords: saving glut; investment spending; saving; interest rates; global residential demographics; secular; stagnation; international economics; current account balance of payments (search for similar items in EconPapers)
JEL-codes: E2 F00 (search for similar items in EconPapers)
Date: 2017-03-22
New Economics Papers: this item is included in nep-mac
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