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Demographic Transition and Low U.S. Interest Rates

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  • Carlos Carvalho
  • Andrea Ferrero
  • Fernanda Nechio

Abstract

Interest rates have been trending down for more than two decades. One possible explanation is the dramatic worldwide demographic transition, with people living longer and population growth rates declining. This demographic transition in the United States?particularly the steady increase in life expectancy?put significant downward pressure on interest rates between 1990 and 2016. Because demographic movements tend to be long-lasting, their ongoing effects could keep interest rates near the lower bound longer. This has the potential to limit the scope for central banks to respond to future recessionary shocks.

Suggested Citation

  • Carlos Carvalho & Andrea Ferrero & Fernanda Nechio, 2017. "Demographic Transition and Low U.S. Interest Rates," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00142
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    References listed on IDEAS

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    1. Carvalho, Carlos & Ferrero, Andrea & Nechio, Fernanda, 2016. "Demographics and real interest rates: Inspecting the mechanism," European Economic Review, Elsevier, vol. 88(C), pages 208-226.
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    Cited by:

    1. Michael Buchner, 2020. "Fiscal Policy in an Age of Secular Stagnation," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(3), pages 398-429, September.
    2. John C. Williams, 2017. "What’s the Future of Interest Rates? The Answer’s in the Stars," Speech 183, Federal Reserve Bank of San Francisco.
    3. soyoung Lee, 2018. "The Role of Firm Heterogeneity in the Earnings Inequality," 2018 Meeting Papers 1155, Society for Economic Dynamics.

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