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Friday, November 17, 2017

Productivity Growth and Real Interest Rates in the Long Run

Kurt G. Lunsford of the Federal Reserve Bank of Cleveland:

Productivity Growth and Real Interest Rates in the Long Run: Despite the unemployment rate's return to low levels, inflation-adjusted or "real" interest rates have remained negative. One popular explanation for persistently negative real interest rates is that long-run productivity growth has slowed. I study the long-run relationship between real interest rates and productivity growth from 1914 to 2016 and find a negative correlation between these two variables. Hence, low productivity growth has been historically associated with high real interest rates. Since World War II, the correlation between these variables has been near zero. This suggests that slow long-run productivity growth is not driving real interest rates to be persistently negative. ...

    Posted by on Friday, November 17, 2017 at 10:21 AM in Economics, Productivity | Permalink  Comments (16)


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