Falling Interest Rates

The secular decline in rates since the Volker era is quite striking. Besides factors related to the great moderation and the global savings glut, I wonder how much of this trend is due to the USD’s exorbitant privilege in a growing and globalizing world economy.

More recent declines likely reflect the combination of (1) a shrinking supply of safe assets (think formerly highly rated MBS and European sovereign debt) and (2) an uncertain and daunting economic environment.

Low supply and high demand lead to higher prices and lower yields.

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About ozidar

I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar. http://faculty.chicagobooth.edu/owen.zidar/index.html
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