Where Are Real Interest Rates Headed?
IMF Blog, April 1, 2014
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Bibliographic details
- Authors: Davide Furceri, Andrea Pescatori
- Published: April 1, 2014
Context and framing
- Authors: Davide Furceri, Andrea Pescatori
- Publication date: April 1, 2014
- Topic: Recent declines in real interest rates (real cost of borrowing) and prospects over the next five to ten years.
- Key historical statistic: average global 10 year real rate declined from 6 percent in 1983 to almost zero in 2012.
Observed trend and immediate drivers
- Recent interest rate declines have been global.
- The decline reflects, to a large extent, weak economic conditions in advanced economies after the global financial crisis.
- Implication: some reversals are likely as advanced economies return to a more normal state.
Factors that could push real interest rates higher (medium term)
- High and rising debt levels in advanced economies.
- Population aging.
- Monetary policy tapering.
- Financial deepening in emerging market economies, which would reduce borrowing constraints and thereby net saving.
Factors that could push real interest rates lower or keep them low
- Long-lasting negative effects of the global crisis on economic activity.
- Persistence of the “saving glut” in key emerging market economies.
- Renewed declines in the relative price of investment goods.
Forward-looking analysis and engagement
- The forthcoming analytical chapter of the World Economic Outlook constructs a new dataset of real interest rates for a wide set of countries and provides a perspective on where real interest rates and, more generally, the cost of capital are heading.
- Live webcast: Watch the live webcast of the analytical chapters of the World Economic Outlook on Thursday April 3 at 9 am (EST) on www.imf.org, where the IMF will discuss its latest thinking on these issues.
IMF Blog — Where Are Real Interest Rates Headed?, Davide Furceri and Andrea Pescatori, April 1, 2014.
