Globalization, Market Power, and the Natural Interest Rate

May 6, 2019

Preview Citation

Format: Chicago

Jean-Marc Natal, and Nicolas Stoffels. Globalization, Market Power, and the Natural Interest Rate, (USA: International Monetary Fund, 2019) accessed November 12, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We argue that strong globalization forces have been an important determinant of global real interest rates over the last five decades, as they have been key drivers of changes in the natural real interest rate—i.e. the interest rate consistent with output at its potential and constant inflation. An important implication of our analysis is that increased competition in goods and labor market since the 1970s can help explain both the large increase in real interest rates up to the mid-1980s and—as globalization forces mature and may even go into reverse, leading to incrementally rising market power—its subsequent and protracted decline accompanied by lower inflation. The analysis has important implications for monetary policy and the optimal pace of normalization.

Subject: Financial services, Globalization, Labor, Labor markets, Long term interest rates, Production, Productivity, Real interest rates

Keywords: Global, Globalization, Globalization premium, Globalization process, Goods market, Labor markets, Long term interest rates, Low interest rate puzzle, Markups, Natural interest rate, Price markup, Productivity, Reaction function, Real interest rates, WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/095
Stock No:

WPIEA2019095
ISBN:

9781498311410
ISSN:

1018-5941

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