From the Mercatus center. The contributions are not coordinated in any way. We wrote essays about causes, effects, predictions, …whatever we felt like, on the general subject of the implications of low interest rates and the potential for them to rise. So far, we have
the 10-year Treasury yield has fallen more as a result of business-cycle pressures and policy uncertainty than because of structural changes like demographics. Consequently, more normal levels of interest rates are likely to prevail in the future.
If he is right, he could make a lot of profit by shorting bonds. And he may be right.
There are at least five reasons for the current low real rates of interest: (a) labor force growth has declined around the world, thereby reducing the need for business and housing investment; (b) a large cohort in many countries is entering the maximum saving years immediately prior to retirement; (c) productivity growth has declined around the world, thus reducing the demand for business investment; (d) regulatory changes have increased the demand for safe assets, including those that are commonly used to quote interest rates; and (e) driven by government policies, developing and emerging market economies have become net savers instead of net borrowers since 2000. In late 2009, I noted that the decline of real interest rates had been going on for about 30 years, and I pointed to several of those factors. This phenomenon is not limited to the aftermath of the Great Recession.
Interest rates, like other prices, can change for all sorts of reasons; the implications of the change generally depend on the particular reason for such a change.
I had the same problem that Selgin had in starting the discussion with the value of an endogenous variable. I wrote,
The fiscal effect of an interest rate change depends on the source for that change. The source could be an increase in real economic growth, an increase in inflation, or an increase in the risk premium that investors assign to government securities.