Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212407 
Year of Publication: 
2017
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 36/2017
Publisher: 
Bank of Finland, Helsinki
Abstract: 
Prevailing explanations of the decline in real interest rates since the early 1980s are premised on the notion that real interest rates are driven by variations in desired saving and investment. But based on data stretching back to 1870 for 19 countries, our systematic analysis casts doubt on this view. The link between real interest rates and saving-investment determinants appears tenuous. While it is possible to find some relationships consistent with the theory in some periods, particularly over the last 30 years, they do not survive over the extended sample. This holds both at the national and global level. By contrast, we find evidence that persistent shifts in real interest rates coincide with changes in monetary regimes. Moreover, external influences on countries' real interest rates appear to reflect idiosyncratic variations in interest rates of countries that dominate global monetary and financial conditions rather than common movements in global saving and investment. All this points to an underrated role of monetary policy in determining real interest rates over long horizons.
JEL: 
E32
E40
E44
E50
E52
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-203-7
Document Type: 
Working Paper

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