Low for (Very) Long? A Long-Run Perspective on r* across Advanced Economies

We provide a long-run perspective on neutral interest rates with new estimates for 16 advanced economies since the 1870s using the Laubach and Williams approach. Our estimates differ substantially from commonly used proxies.
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Volume/Issue: Volume 2023 Issue 085
Publication date: April 2023
ISBN: 9798400235245
$20.00
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Banks and Banking , Exports and Imports , Economics- Macroeconomics , Economics / General , Demography , neutral rate , old-age dependency ratio , time series , neutral interest rates , coefficient estimate , cited estimation approach , estimation procedure , Real interest rates , Capital account , Aging , Output gap , Global

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Summary

We provide a long-run perspective on neutral interest rates with new estimates for 16 advanced economies since the 1870s using the Laubach and Williams approach. Our estimates differ substantially from commonly used proxies. We find that, while cross-country heterogeneity was significant in the past, since the 1980s the decline has been common to many countries. Traditional determinants such as population aging and productivity growth are strongly correlated with the changes in neutral rates, while others like the relative price of capital and inequality exhibit weak relationships with r*. We also find that neutral rates co-vary negatively with public debt-to-GDP ratios.

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