Perspectiveson Low Global Interest Rates

March 1, 2006

Preview Citation

Format: Chicago

Luis Catão, and George A Mackenzie. Perspectiveson Low Global Interest Rates, (USA: International Monetary Fund, 2006) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper looks at the dramatic decline in global real interest rates in recent years from a historical perspective and examines the various factors that may account for this trend. We show that current levels of real interest rates on long-term bonds in advanced economies are not low by historical standards and that it is the real long bond rates of the early 1980s through much of the 1990s that look anomalous. We also find that current global long-term interest rates are roughly in line with what one would predict given current price-earnings (P/E) ratios and under reasonable assumptions about the equity risk premia and the expected rate of growth of earnings in advanced countries. Finally, we provide econometric evidence that global long-term interest rates are significantly affected by commodity prices, expected productivity growth, and fiscal consolidation in advanced countries.

Subject: Emerging and frontier financial markets, Financial institutions, Financial markets, Financial services, Long term interest rates, National accounts, Real interest rates, Return on investment, Stocks, Yield curve

Keywords: Emerging and frontier financial markets, Equity risk premium, Estimation result, Global, Global saving, Interest rate, Interest rate variable, Interest rate-investment dynamics, Investment, Long term interest rates, Oil price inflation, Price-earnings ratio, Real interest rates, Real rate of interest, Return on investment, Stocks, World interest rates, WP, Yield gap

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/076
Stock No:

WPIEA2006076
ISBN:

9781451863369
ISSN:

1018-5941

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