Demographics and Real Interest Rates Across Countries and Over Time


Carlos Carvalho, Andrea Ferrero, Felipe Mazin, Fernanda Nechio

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2023-32 | November 29, 2023

We explore the implications of demographic trends for the evolution of real interest rates across countries and over time. To that end, we develop a tractable three-country general equilibrium model with imperfect capital mobility and country-specific demographic trends. We calibrate the model to study how low-frequency movements in a country’s real interest rate depend on its own and other countries’ demographic factors, given a certain degree of financial integration. The more financially integrated a country is, the higher the sensitivity of its real interest rate to global developments is, and the less its own real rate determinants matter. We then estimate panel error correction models relating real interest rates to many of its possible determinants-demographics included-imposing some restrictions motivated by lessons from our structure model. Results corroborate the importance of accounting for time-varying financial integration, and show global factors and life expectancy are relevant determinants of real interest rates.

Article Citation

Carvalho, Carlos, Andrea Ferrero, Felipe Mazin, and Fernanda Nechio. 2023. “Demographics and Real Interest Rates Across Countries and Over Time,” Federal Reserve Bank of San Francisco Working Paper 2023-32. Available at