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Archive » December 2018 » Declining interest rates: a long-term trend

Declining interest rates: a long-term trend

Vincenzo D’Apice, Giovanni W. Puopolo
December 2018 - n. 12

The United States and euro area long-term interest rates are experiencing an important decline which started severalyears before the recent financial crisis. This trend can be mainly attributed to the reduction of the expected real interest rate, and, in turn, to the drop in the natural rate of interest. Similarly, the expected inflation rate and the inflation risk premium also contributed to this declining dynamics. This evidence seems to suggest that, in the United States and euro area, long-term interest rates are going to stay low for the coming years, with important consequences for monetary policy and bank business models.

 

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