July 13, 2022

Structural causes of low interest rates

Interest rates have been trending downward since at least 1980s in developed economies, including the euro area. In fact, real rates (the real rate is the interest rate adjusted for inflation) are now at historically low levels. We conclude in this publication that structural factors such as the increasing life expectancy and lower productivity growth rates are driving this downward trend. Although nominal interest rates (the interest rate before correcting for inflation) have recently started to rise, current projections of the structural factors indicate that real interest rates may remain low in the medium to long run.