Why Have Interest Rates Been So Low?

John Tatom

No 2007-WP-13, NFI Working Papers from Indiana State University, Scott College of Business, Networks Financial Institute

Abstract: This paper looks at interest rate developments in the US and argues that longterm real interest rates are at lows not seen in the past 50 years. It explores competing hypotheses that there is a global saving glut, there is conundrum or that global capital formation has slowed. The dominant view is a glut of saving, especially in China and Asia, that is depressing global real interest rates and boosting growth. While private sector capital formation remains at historic strong levels in the US, the same is not the case abroad. Unfortunately strong saving in China had not resulted in a boom in saving in Asia or globally. A decline in global capital formation is the proximate cause of depressed real interest rates. This is not a cyclical problem that is likely to go away with a rebound in economic activity in Asia or Europe. The implications for economic growth are dismal, despite notable exceptions in China and the US.

Keywords: interest rates; capital formation; saving (search for similar items in EconPapers)
Pages: 17 pages
Date: 2007-04
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Citations: View citations in EconPapers (2)

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