Possible explanations for the gap between the RoE and the long-term interest rate

The gap between the return on equity (RoE) and the long-term interest rate has increased considerably over time. This gap has very damaging consequences. In particular, it eliminates the effect of expansionary monetary polic y on corporate investment and drives up income and wealth inequalities. It may stem from a number of factors : An increase in corporate risk; A rationing of corporate finance, which stops companies from investing more despite the decline in long-term interest rates; An increase in debt leverage; A rise of monopoly positions; Competition for market shares between fund managers, which drives them to demand high returns from the companies in which they invest.