Demographic trends and the real interest rate

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 21 December 2017

Working Paper No. 701
by Noëmie Lisack, Rana Sajedi and Gregory Thwaites

We quantify the impact of past and future global demographic change on real interest rates, house prices and household debt in an overlapping generations model. Falling birth and death rates can explain a large part of the fall in world real interest rates and the rise in house prices and household debt since the 1980s.
These trends will persist as the share of the population in the high-wealth 50+ age bracket continues to rise. As the United States ages relatively slowly, its net foreign liability position will grow. The availability of housing and debt as alternative stores of value attenuates these trends. The increasing monopolisation of the economy has ambiguous effects.

PDFWorking Paper No. 701

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