Theories to explain the low real interest rates

Real long-term interest rates in OECD countries have been on a downward trend since the early 1980s and are now negative, which has very significant effects on debt strategies. To find out how long real long-term interest rates will remain negative, we have to determine why the level of real interest rates is low. There are three possible explanations: A slowdown in technological progress (in total factor productivity); Highly expansionary monetary policies; Ex ante excess savings over investment and increasing demand for risk-free bonds. We first try to choose between these three possible explanations and we then analyse the consequences of the various explanations for debt strategies. If monetary policy is the main cause of low real long-term interest rates, we can imagine that they will rise again in the future in a few years and trigger a debt crisis. This is not the case if the low real long-term interest rates result from lasting structural causes, a slowdown in technological progress or excess savings. We see two mechanisms at work: Monetary policy; And the trend in the savings rate, in the OECD or globally. If monetary policy becomes less expansionary, a fall in real long-term interest rates will remain as a structural factor .