On secular stagnation and low interest rates: Demography matters. (14th February 2019)

• Record Type: Journal Article
• Authors: Ferrero, Giuseppe; Gross, Marco; Neri, Stefano
• Is Part Of: International finance. Volume 22:Number 3(2019)
• Page Start: 262
• Page End: 278
• Publication Date: 2019-02-14
• Subjects: International finance -- Periodicals; International economic relations -- Periodicals; Macroeconomics -- Periodicals; 332.04205
• DOI: 10.1111/infi.12342
• Languages: English
• ISSNs: 1367-0271

Abstract

Abstract: Nominal and real interest rates in advanced economies have been declining since the mid‐1980s and reached historically low levels after the outbreak of the global financial crisis. Understanding why interest rates have fallen is of utmost importance for monetary policy. This paper focuses on one of the factors contained within the 'secular stagnation' view: adverse demographic developments. The empirical analysis shows that these developments have exerted a downward pressure on real interest rates in the euro area in the last decade. Building on the projections of the dependency ratios produced by the European Commission, we show that the foreseen changes in the age composition of the population may continue exerting downward pressure on real interest rates.