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Why Have Interest Rates Been So Low?

John Tatom

MPRA Paper from University Library of Munich, Germany

Abstract: This paper looks at interest rate developments in the US and argues that long-term 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)
JEL-codes: E21 F4 G15 (search for similar items in EconPapers)
Date: 2007-04-18
New Economics Papers: this item is included in nep-cna, nep-mac, nep-mon and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://mpra.ub.uni-muenchen.de/4113/1/MPRA_paper_4113.pdf original version (application/pdf)

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Working Paper: Why Have Interest Rates Been So Low? (2007) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:4113

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