TY  - JOUR
AU  - Lunsford, Kurt G
AU  - West, Kenneth D
TI  - Some Evidence on Secular Drivers of U.S. Safe Real Rates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 25288
PY  - 2018
Y2  - November 2018
DO  - 10.3386/w25288
UR  - http://www.nber.org/papers/w25288
L1  - http://www.nber.org/papers/w25288.pdf
N1  - Author contact info:
Kurt G. Lunsford
Federal Reserve Bank of Cleveland
Research Department
P.O. Box 6387
Cleveland, OH 44101
Tel: 216-774-2540
E-Mail: kurt.lunsford@clev.frb.org

Kenneth D. West
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706
Tel: 608/262-0033
Fax: 608/262-2033
E-Mail: kdwest@wisc.edu
AB  - We study long run correlations between safe real interest rates in the U.S. and over 30 variables that have been hypothesized to influence real rates.  The list of variables is motivated by an intertermporal IS equation, by models of aggregate savings and investment, and by reduced form studies.  We use annual data, mostly from 1890 to 2016.  We find that safe real interest rates are correlated as expected with demographic measures.  For example, the long run correlation with labor force hours growth is positive, which is consistent with overlapping generations models.  For another example, the long run correlation with the proportion of 40 to 64 year-olds in the population is negative.  This is consistent with standard theory where middle-aged workers are high-savers who drive down real interest rates.  In contrast to standard theory, we do not find productivity to be positively correlated with real rates.  Most other variables have a mixed relationship with the real rate, with long run correlations that are statistically or economically large in some samples and by some measures but not in others.
ER  -