May 27, 2016

Determinants of long-term interest rates

The nominal long-term interest rate decreased in the past decades due to the decrease in (expected) inflation and in potential growth and due to changes in the age structure of the population.

This conclusion is based on our survey of the literature and our empirical findings for the long-term interest rate in high-income countries since 1990. The relationship between nominal interest rates and macroeconomic fundamentals is relatively weak, as demonstrated by the low explanatory power of our regression analysis. The consensus is that the interest rate will somewhat recover, but not return to historical levels.



Ona Ciocyte
Sander Muns
Marcel Lever