The Role of the Growth of Risk-Averse Wealth in the Decline of the Safe Real Interest Rate

Abstract

for helpful comments. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. Complete backup for all of the calculations is available from my website, stanford.edu/~rehall NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

A New Normal for Interest Rates? Evidence from Inflation-Indexed Debt

“…Although our measure of the real rate fluctuated at the start of the global financial crisis, our average r * t estimate in 2010 is not much different than in 2007. This relative stability before and after the Financial Crisis suggests that flight-to-safety and safety premium explanations of the lower equilibrium real rate are unlikely to be key drivers of the downtrend in Treasury rates (as proposed by Hall, 2016, andDel Negro et al, 2017, among others). Instead, our estimates appear more broadly consistent with many of the explanations that attribute the decline in the natural rate to real-side fundamentals.…”

Accounting for Macro-Finance Trends: Market Power, Intangibles, and Risk Premia

“…This table reports the estimated parameters in each of the two subsamples 1984-2000 and 2001-16 in the baseline model and in some variants: disaster risk with certain small offsets rather than rare windfalls; disaster risk without offset; lognormal risk; timevarying risk aversion; time-varying disaster size; IES = 1; and IES = 0.5. Barro and others (2016) and Hall (2017). a. IES = intertemporal elasticity of substitution.…”

Global Trends in Interest Rates

“…Third, the trend decline in the world real interest rate over the last few decades is driven to a significant extent by an increase in convenience yields, which points to a growing imbalance between the global demand for safety and liquidity and its supply. This contribution is especially concentrated in the period since the mid-1990s, supporting the view that the Asian financial crisis of 1997 and the Russian default in 1998, with the ensuing collapse of LTCM, were key turning points in the emergence of global imbalances (e.g., Bernanke, 2005;Bernanke et al, 2011;Caballero and Krishnamurthy, 2009;Caballero, 2010;Caballero and Farhi, 2014;Caballero et al, 2015;Gourinchas and Rey, 2016;Hall, 2016;Caballero et al, 2017;Caballero, 2018).…”