Why Are Interest Rates So Low?

Cocci, Matthew; Del Negro, Marco; Giannoni, Marc; Shahanaghi, Sara; Smith, Micah

Discussion Paper

Why Are Interest Rates So Low?

Abstract: In a recent series of blog posts, the former Chairman of the Federal Reserve System, Ben Bernanke, has asked the question: 'Why are interest rates so low?' (See part 1, part 2, and part 3.) He refers, of course, to the fact that the U.S. government is able to borrow at an annualized rate of around 2 percent for ten years, or around 3 percent for thirty years. If you expect that inflation is going to be on average 2 percent over the next ten or thirty years, this implies that the U.S. government can borrow at real rates of interest between 0 and 1 percent at the ten- and thirty-year maturities. This phenomenon is by no means limited to the United States. Governments in Japan and Germany are able to borrow for ten years at nominal rates below 1 percent, and the ten-year yield on Swiss government debt is slightly negative. Why is that?

Keywords: low interest rates;

JEL Classification: E2; E5; G1;