Central banks (the Fed) and markets (the market) often disagree about the path of interest rates. We develop a model where these different views stem from disagreements between the Fed and the market about future aggregate demand. We then study the implications of these disagreements for...

This paper employs an aggregate representation of an overlapping generation (OLG) model quantifying a decrease of the natural real interest rate in the range of -1.7 and -0.4 percentage points in the euro area between 1990 and 2030 due to demographics alone. Two channels contribute to this...

The low nominal interest rate environment is a hotly debated phenomenon among politicians, financial market participants and households. Savers fear the erosion of their retirement savings, while financial supervisors warn of the stability risks caused by declining bank profitability and by the...

We quantify the impact of demographic change on real interest rates, house prices and household debt in an overlapping-generations model. Falling birth and death rates across advanced economies can explain much of the observed fall in real interest rates and the rise in house prices and...

After recalling the quantitative relevance as of end-2019 of “new normal” ultra-low interest rates at world level, a brief discussion is offered of key areas of economic analysis and policy critically impacted by negative nominal interest rates. Specific reference is made to the following...

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...

This paper employs an aggregate representation of an overlapping generation (OLG) model quantifying a decrease of the natural real interest rate in the range of -1.7 and -0.4 percentage points in the euro area between 1990 and 2030 due to demographics alone. Two channels contribute to this...

We study long-run correlations between safe real interest rates in the U.S. and over 20 variables that have been hypothesized to influence real rates. The list of variables is motivated by the familiar intertermporal IS equation, by models of aggregate savings and investment, and by reduced form...

This paper employs a large-scale overlapping generation (OLG) model quantifying that demographics account for a decrease in the natural real interest rate of about 1.4 percentage points in the euro area compared with the average for the 1980s to 2030 (roughly at its trough), under the baseline...

What can explain the long-term decline in equilibrium real interest rates? We analyze the importance of three of the most cited drivers; decreasing fertility, decreasing mortality, and a slowdown of technological growth. We do this through the lens of a general-equilibrium, two-country,...