This paper presents an empirical evaluation of the strength of the Fisher effect which predicts a positive relationship between the nominal interest rate and inflation in the postwar period in the five major industrial countries, utilizing recently developed time series techniques. The results...

We develop a heterogeneous agent, overlapping generations model with nonhomothetic preferences that nests several explanations for the decline in the natural rate of interest (r*) suggested in the literature: demographic change, a slowdown in productivity growth, a rise in income inequality, and...

Japan's aging and shrinking population could lower the natural rate of interest and, together with low inflation expectations, challenge the Bank of Japan's efforts to reflate the economy. This paper uses a semi-structural model to estimate the impact of demographics on the natural rate in...

We argue that strong globalization forces have been an important determinant of global real interest rates over the last five decades, as they have been key drivers of changes in the natural real interest rate-i.e. the interest rate consistent with output at its potential and constant inflation....

This paper looks at the dramatic decline in global real interest rates in recent years from a historical perspective and examines the various factors that may account for this trend. We show that current levels of real interest rates on long-term bonds in advanced economies are not low by...

We investigate the role of financial dollarization in the determination of real interest rates in emerging economies. In a simple analytical model, we show that a strategy of ""dedollarizing"" the economy, if it fails to address fundamental macroeconomic risks, leads to higher domestic real...

This paper highlights that real interest rates in Brazil have declined substantially over time, but are still well above the average of emerging market inflation targeting regimes. The adoption of an inflation-targeting regime and better economic fundamentals (reduction in inflation volatility...

By constructing and estimating a structural arbitrage-free model of demand pressures on US real rates, we find that recent purchases of US government debt securities by the Fed and foreign officials have significantly affected the level and the dynamics of US real rates. In particular, by 2008,...

Concerns were raised beginning in the 1980s about the possible detrimental effects of high positive real interest rates under financial liberalization. Using a sample of 28 countries that underwent financial liberalization since the 1970s, the paper examines the evidence about the emergence of...

This paper examines the behavior of real interest rates in exchange-rate based stabilization programs. The analysis is based on a model with imperfect capital mobility and optimizing agents. A permanent reduction in the devaluation rate is first shown to have an ambiguous effect on real interest...