Staff Working Paper No. 990
By Ambrogio Cesa-Bianchi, Richard Harrison and Rana Sajedi
This paper develops a structural model to study the global trend real interest rate, ‘Global R*’. We focus on five potential drivers: productivity growth, population growth, longevity, government debt, and the relative price of capital. We employ a recursive simulation method in which beliefs about long-run trends are updated gradually. The simulations are guided by estimates of the global trend component of each driver derived from a panel data set of 31 countries from 1950 to 2020. Global R* rises until the mid-1970s before declining by around 3 percentage points. The decline is driven by slowing productivity growth and increasing longevity.
Global R*