Nominal and real interest rates in OECD countries, changes in sight after covid-19?

Claude Bismut and Ismaël Ramajo
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Claude Bismut: CEE-M - Centre d'Economie de l'Environnement - Montpellier - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro - Montpellier SupAgro - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement
Ismaël Ramajo: CEE-M - Centre d'Economie de l'Environnement - Montpellier - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro - Montpellier SupAgro - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement

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Abstract: In this article we seek to gain a better understanding of the decline in interest rates observed over the long term and we ask whether this trend is likely to stop or even reverse as a result of the covid crisis. For this, we introduce a model that combines an intertemporal framework and a price adjustment process. This model makes it possible to derive a testable relationship between observable macroeconomic variables. Tests carried out on a panel of 19 OECD countries confirm the influence of factors suggested by the theoretical model, in particular, the link between the fall in the interest rate and the economic slowdown. The covid episode is analyzed as a mixed shock of supply and demand. The exit from the covid crisis could be accompanied by a rebound, but rising real interest rates are not the most likely scenario.

Keywords: Interest rate; Real interest rate; Risk premia; Macroeconomic policy; Potential growth; Stagnation; Covid-19; Panel data; Taux d’intérêt; taux d’intérêt réel; primes de risque; politique macroéconomique; croissance potentielle; stagnation; covid-19; économétrie de panels (search for similar items in EconPapers)
Date: 2021
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Published in International Economics and Economic Policy, inPress, 18, pp.493-516. ⟨10.1007/s10368-021-00514-5⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03329739

DOI: 10.1007/s10368-021-00514-5

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