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Productivity Growth and Real Interest Rates in the Long Run

Author

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  • Kurt Graden Lunsford

Abstract

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.

Suggested Citation

  • Kurt Graden Lunsford, 2017. "Productivity Growth and Real Interest Rates in the Long Run," Economic Commentary, Federal Reserve Bank of Cleveland, issue November.
    • Handle: RePEc:fip:fedcec:00083
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    Cited by:

    1. Heylen, Freddy & Mareels, Marthe & Van Langenhove, Christophe, 2024. "Long-run perspectives on r-g in OECD countries: An empirical analysis," Journal of International Money and Finance, Elsevier, vol. 145(C).
    2. Mr. Philip Barrett, 2018. "Interest-Growth Differentials and Debt Limits in Advanced Economies," IMF Working Papers 2018/082, International Monetary Fund.
    3. Serge Rey & Catherine Ris, 2018. "Sectoral labour productivity and economic competitiveness in New Caledonia," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 499, pages 29-53.
    4. Olk, Christopher, 2024. "How much a dollar cost: Currency hierarchy as a driver of ecologically unequal exchange," World Development, Elsevier, vol. 180(C).
    5. Usman Khalid & Olivier Habimana, 2021. "Military Spending and Economic Growth in Turkey: A Wavelet Approach," Defence and Peace Economics, Taylor & Francis Journals, vol. 32(3), pages 362-376, April.

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