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On secular stagnation and low interest rates: Demography matters
Author(s) -
Ferrero Giuseppe,
Gross Marco,
Neri Stefano
Publication year - 2019
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/infi.12342
Subject(s) - economic stagnation , economics , interest rate , real interest rate , secular variation , financial crisis , population , dependency ratio , european commission , keynesian economics , monetary economics , demography , international economics , european union , political science , politics , sociology , law
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.