On December 12, 2019, Fed in Print will introduce its new platform for discovering content. Please direct your questions to Anna Oates

Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Cleveland
Working Papers (Old Series)
Some Evidence on Secular Drivers of US Safe Real Rates
Kurt Graden Lunsford
Kenneth D. West
Abstract

We study long-run correlations between safe real interest rates in the United States and over 20 variables that have been hypothesized to influence real rates. The list of variables is motivated by the familiar intertermporal IS equation, by models of aggregate savings and investment, and by reduced form studies. We use annual data, mostly from 1890 to 2016. We find that safe real interest rates are correlated as expected with demographic measures. For example, the long-run correlation with labor force hours growth is positive, which is consistent with overlapping generations models. For another example, the long-run correlation with the proportion of 40- to 64-year-olds in the population is negative. This is consistent with standard theory where middle-aged workers are high-savers who drive down real interest rates. In contrast to standard theory, we do not find productivity to be positively correlated with real rates. Most other variables have a mixed relationship with the real rate, with long-run correlations that are statistically or economically large in some samples and by some measures but not in others.


Download Full text
Cite this item
Kurt Graden Lunsford & Kenneth D. West, Some Evidence on Secular Drivers of US Safe Real Rates, Federal Reserve Bank of Cleveland, Working Papers (Old Series) 1723, 21 Dec 2017.
More from this series
JEL Classification:
Subject headings:
Keywords: demographics; low-frequency correlation; lowpass filtered correlation; natural rate of interest; productivity; steady state interest rate
DOI: 10.26509/frbc-wp-201723
For corrections, contact 4D Library ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal