Munich Personal RePEc Archive

Why Are Interest Rates So Low?

John, Tatom (2006): Why Are Interest Rates So Low? Published in: Research Buzz , Vol. 2, No. 4 (30 April 2006): pp. 1-5.

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Interest rates have been unusually low in this decade. Some prominent analysts have suggested that this is due to a saving glut, especially in China. A more likely source of the lower real interest rate level is a fall in the demand for capital goods and its financing. This article looks at whether capital spending and its financing have been weak, possibly accounting for declining real interest rates. It shows that private investment has been weak by historical standards; and this has probably reflected low rates of return to global investment, as well as significant changes in the prices of capital goods relative to other goods and services. The implications of these developments are very different and also different from the excess saving hypothesis.

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