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On secular stagnation and low interest rates: demography matters

Author

Listed:
  • Stefano Neri

    (Banca d'Italia)

  • Giuseppe Ferrero

    (Banca d'Italia)

  • Marco Gross

    (European Central Bank)

Abstract
Nominal and real interest rates in advanced economies have been decreasing since the mid-1980s and reached historical lows in the aftermath of the global financial crisis. Understanding why interest rates have fallen is essential for both monetary policy and financial stability. This paper focuses on one of the factors put forward in the literature within the secular stagnation view: adverse demographic developments. The main conclusion that we draw from the empirical analysis is that these developments have exerted downward pressure on real short- and long-term interest rates in the euro area over the past decade. Moreover, building on the European Commission’s projections for dependency ratios until 2025, we illustrate that the foreseen changes in the age structure of the population may dampen economic growth and continue exerting downward pressure on real interest rates in the future.

Suggested Citation

  • Stefano Neri & Giuseppe Ferrero & Marco Gross, 2017. "On secular stagnation and low interest rates: demography matters," Temi di discussione (Economic working papers) 1137, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1137_17
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    References listed on IDEAS

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    More about this item

    Keywords

    secular stagnation; demographic developments; real interest rates; monetary policy;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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