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Interest Rates, Financial Markets, and Macroeconomics

In: New Challenges for Macroeconomic Policies

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  • Gilles Dufrénot

    (Sciences Po Aix)

Abstract

This chapter reviews the causes of the prolonged decline in interest rates, not only market rates, but also the long-term rate of return on capital, that is, the natural interest rate. One important aspect is the enormous idle liquidity that cannot be borrowed due to an overabundance of net savings worldwide. To understand the origin of this, we must look at consumption and investment behavior and balance of payments imbalances. But we must also mention the important role of the financial cycle on macroeconomic phenomena. For phases of sharp rate cuts generally occur after sudden reversals in financial cycles that follow long phases of rising asset prices. This chapter shows the effects of these on recessions and potential growth in the medium/long term.

Suggested Citation

  • Gilles Dufrénot, 2023. "Interest Rates, Financial Markets, and Macroeconomics," Springer Books, in: New Challenges for Macroeconomic Policies, chapter 0, pages 195-257, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-15754-7_5
    DOI: 10.1007/978-3-031-15754-7_5
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