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On secular stagnation and low interest rates: Demography matters

Author

Listed:
  • Giuseppe Ferrero
  • Marco Gross
  • Stefano Neri

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.

Suggested Citation

  • Giuseppe Ferrero & Marco Gross & Stefano Neri, 2019. "On secular stagnation and low interest rates: Demography matters," International Finance, Wiley Blackwell, vol. 22(3), pages 262-278, December.
    • Handle: RePEc:bla:intfin:v:22:y:2019:i:3:p:262-278
    DOI: 10.1111/infi.12342
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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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