How does the real interest rate return to the level of the marginal productivity of capital?
Given the highly expansionary monetary policies, real long-term interest rates have become negative in OECD countries, i.e. markedly lower than the marginal productivity of capital (the increase in production made possible by an increase in capital). However, the real interest rate and the marginal productivity of capital must be identical in the long term. How can the rebalancing then take place? Either through very significant capital accumulation, which drives down the marginal productivity of capital ; we cannot see this at present; Or through a sharp rise in the risk premium associated with investment in capital, and which closes the gap between the marginal productivity of capital and the risk-free real long-term interest rate; this assumption is not absurd; Or through by the neo-Fisherian mechanism: very low nominal interest rates lead to a decline in inflation that drives up real interest rates towards the level of the marginal productivity of capital.