The real interest rate puzzle

Article Abstract:

United Kingdom index-linked government securities are yielding less than those of the US, which could mean that pound sterling will rise against the US dollar, or that capital mobility is not perfect. World interest rates look set to drop, though not necessarily because of a drop in supply. Imports from Asian economies hit by crisis will affect corporate profits so investment levels, which will lead to lower interest rates, argues Barclays Capital's Tim Bond. Demographic factors could also lead to a drop in interest rates.

Government securities

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The real interest rates puzzle

Article Abstract:

Interest rates have risen in real terms since May 1999 and this could lead to a drop in inflation and slower economic growth. A generalized rise in interest rates world wide may not have this effect since it cannot push up exchange rates world wide. Investment and consumption may be affected by a generalized interest rate rise, though the impact of higher interest rates is not clear cut. Output may be affected by a reversal of inventory rises. Any slowdown in world growth may be temporary.

Gross domestic product

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The real interest rate puzzle

Article Abstract:

Real interest rates in the UK are at the lowest level for 20 years, at 2.1%, but there are different interpretations as to whether this is good or not. One view is that low real base rates correlate to low real equity returns.

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