## Globalization, Market Power, and the Natural Interest Rate

_IMF Working Papers, May 6, 2019_

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**Canonical URL:** [Globalization, Market Power, and the Natural Interest Rate](https://www.imf.org/en/publications/wp/issues/2019/05/06/globalization-market-power-and-the-natural-interest-rate-46825)

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## Bibliographic details
- Authors: Jean-Marc Natal, Nicolas Stoffels
- Published: May 6, 2019
- Series: IMF Working Papers

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### Key findings
- Strong globalization forces have been an important determinant of global real interest rates over the last five decades.
- Globalization has been a key driver of changes in the natural real interest rate—i.e. the interest rate consistent with output at its potential and constant inflation.
- Increased competition in goods and labor markets 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.

### Mechanism and channels
- Competition effects in goods and labor markets reduced markups and altered the natural real interest rate over time.
- Mature or reversing globalization may incrementally raise market power (higher markups) and contribute to lower equilibrium real interest rates and lower inflation.

### Implications for monetary policy and normalization
- The analysis has important implications for monetary policy and the optimal pace of normalization.
- Policymakers should account for changes in global market power and globalization dynamics when assessing the natural real interest rate and setting policy rates.

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_Source: https://www.imf.org/en/publications/wp/issues/2019/05/06/globalization-market-power-and-the-natural-interest-rate-46825_