The expected determinants of the real long-term interest rate
The real long-term interest rate is expected to be equal to: Real long-term growth (potential growth); Plus a risk premium linked to interest rate volatility; And a premium if savings fall short of investment. When comparing this estimate of the real long-term interest rate with the actual real long-term interest rate, we see that the current level of the real interest rate is significantly lower than this estimate, both in the United States and in the euro zone.
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