The impact of climate change and geopolitical tensions on long-term interest rates

Abstract

Over the past four decades, estimates of the neutral real interest rate (r*) appear to have trended downward across both advanced and emerging economies in a broadly synchronized manner. This secular downturn has been documented using a wide range of methodologies, including reduced-form trend extraction, semi-structural models, and asset-price-based measures, and appears robust across countries and estimation approaches. A large literature has emerged to explain this phenomenon, emphasizing structural forces that have persistently shifted the global saving–investment balance.