Macroeconomics Seminar Series no.7 - Marcel Cortes Peruffo - 22 May 2024

Secular Drivers of the Natural Rate of Interest in the United States: A Quantitative Evaluation

With Josef Platzer

Abstract: We develop a heterogeneous-agent, overlapping-generations model with nonhomothetic preferences that considers the most prominent proposed explanations for the decline in the natural rate of interest (r*) in the United States. The model accounts for a  4.3 percentage point decline between 1965 and 2015, largely caused by changes in productivity growth, demographics, inequality, and the labor share. Although demographic forces will keep exerting downward pressure on r*, we expect a trough to be reached around 2030, driven by the rise in public debt. Our probabilistic analysis suggests that a reversion toward the levels of r* seen in the past is unlikely.

Start Date
End Date
Fred Gruen Economics Seminar Room (H.W. Arndt Bldg 25 A)
Dr Marcel Cortes Peruffo (University of Sydney)