Interest rates have been at historic lows for over a decade and most of the factors that have driven down equilibrium interest rates since the 1980s are likely to stay in place for the foreseeable future.
Against this backdrop, we have asked leading independent economic research firm, Capital Economics, to analyse the impact of low equilibrium interest rates on the asset markets.
Why is research into equilibrium interest rates needed? Simply put, whilst the equilibrium real interest rate may not sound like the most exciting of economic topics, it is of considerable importance to investors. It underpins borrowing costs and returns across the whole economy. It ensures that planned investment balances, predictable risk and asset pricing, and that inflation is stable around central bank targets.
Reflecting the importance of the issue, this article takes a deep dive into the reasons behind the fall in long-run real interest rates since the 1980s and examines what will be the evolution of savings and investment rates moving forward. And finally, the article looks ahead to why a decade of muted returns likely lies in store for more traditional asset classes. A significant trend as it points towards a potential intensification of the search for yield in financial markets.
We look forward to engaging in further conversations on the issues that count as the industry evolves. We would be pleased to hear your comments and feedback on this opinion piece.