Transcript
The Future of Savings Setting the Stage H´el`ene Rey, based on joint work with Pierre-Olivier Gourinchas.
2016
This work does not reflect in any way the views of the Haut Conseil de Stabilit´e Financi`ere
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Questions:
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Why are global real interest rates so low? (Secular Stagnation [Hansen (1939), Summers (2013)], Savings Glut [Bernanke (2005)])
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For how long are they going to stay low?
I
We use a very simple empirical framework and historical data to get at these questions
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Global Interest Rates (10-year nominal yields) percent
Financial Crisis
18
Eurozone Crisis
16 14 12 10 8 6 4 2 0 -2 1980
1983
1986
1989
1992
U.S.
1995
1998
Germany
2001
U.K.
2004
2007
2010
2013
2016
Japan
Sources: U.S.: 10-year bond constant maturity rate; Germany: 10-year benchmark bond; U.K.: 10-year government bond yield; Japan: 10-year government bond yield. Global Financial Database 3 / 14
.14 1875
1900
1925
1950
1975
‘Historical’ U.S. Real Rates, 1870-2011
2000
.20 sho rt term real inte rest rate (percent) .15 .10 .05 .00 -.05 -.10 -.15 1875
1900
1925
1950
1975
2000
The figure reports the annualized realized real 3-month interest rate for the U.S. since 1870. Source: Jord` a et al (2016). 4 / 14
An Empirical Framework to understand r I
Look at the ratio of consumption (C ) to wealth (W ) over a long period of time.
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Accounting identity (budget constraint) tells us that ratio C /W is below average when: I I
Consumption is expected to grow faster in the future, or Wealth is expected to grow more slowly in the future: low future return on wealth
I
The return on wealth is the risk-free rate r f plus an excess return rp.
I
Formally: ln(Ct /Wt )
= =
P∞
s=0
f ρs rt+s
cwtrf
+
P∞
s=0
+
w ρs rpt+s
cwtrp
−
P∞
s=0
C ρs gt+s
+ cwtc
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0
1930 1940 1950 1960 1970 1980 1920-2011 1990 2000 2010 ‘Global’ 1920 Consumption/Wealth Ratio,
.26 consumption/wealth ratio .24 .22 .20 .18
.16 .14 1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
The figure reports the ratio of aggregate annual private consumption expenditures to total private wealth (land, housing, financial assets) for the U.S., U.K., Germany and France. Source: Jord` a et .20 Piketty & Zucman (2014). al (2016), short term re al intere st rate (percent)
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An Empirical Framework to understand r I
Look at the ratio of consumption (C ) to wealth (W ) over a long period of time.
I
Accounting identity (budget constraint) tells us that ratio C /W is below average when: I I
Consumption is expected to grow faster in the future, or Wealth is expected to grow more slowly in the future: low future return on wealth
I
The return on wealth is the risk-free rate r f plus an excess return rp.
I
Formally: ln(Ct /Wt )
= =
P∞
s=0
f ρs rt+s
cwtrf
+
P∞
s=0
+
w ρs rpt+s
cwtrp
−
P∞
s=0
C ρs gt+s
+ cwtc
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Decomposing the Global Consumption/Wealth Ratio LCWM
2000
.3 .2 .1 .0 -.1 -.2 -.3
2010
-.4 1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
.
The figure decomposes the fluctuations in ln(C /W ) around its mean into a risk-free component .3 (cw rf ), an excess return component (cw rp ) and a consumption growth component (cwc ). .2 8 / 14
Risk premium comp.
Decomposing the Global Consumption/Wealth Ratio
2000
.3 .2 .1 .0 -.1 -.2 -.3
2010
-.4 1920
1930
1940
1950
1960 ln(c/w)
1970
1980
1990
2000
2010
Predicted
The figure decomposes ln(C /W ) into a risk-free component (cw rf ), an excess return component (cw rp ) and a consumption growth component (cwc ). 9 / 14
Ri sk premi um comp. Predicted
Consumpti on comp.
Decomposing the Global Consumption/Wealth Ratio .3
.3
.2
.2
.1
.1
.0
.0
-.1
-.1
-.2
-.2
-.3
-.3
-.4 1920
1930
1940
1950
1960 ln(c/w)
1970
1980
1990
2000
2010
-.4 1920
Risk free comp.
The figure decomposes ln(C /W ) into a risk-free component (cw rf ), an excess return component .3
.3
.2
.2
(cw rp ) and a consumption growth component (cwc ).
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.
Decomposing the Global Consumption/Wealth Ratio
2000
.3 .2 .1 .0 -.1 -.2 -.3
2010
-.4 1920
1930
1940
1950
1960
1970
ln(c/w) Risk premium comp.
1980
1990
2000
2010
Risk free comp.
The figure decomposes ln(C /W ) into a risk-free component (cw rf ), an excess return component .3
(cw rp ) and a consumption growth component (cwc ). .2 11 / 14
Decomposing the Global Consumption/Wealth Ratio .3
.3
.2
.2
.1
.1
.0
.0
-.1
-.1
-.2
-.2
-.3
-.3
-.4 1920
1930
1940
1950
1960
ln(c/w) Ri sk premi um comp. Predicted
1970
1980
1990
2000
2010
-.4 1920
Risk free comp. Consumpti on comp.
The figure decomposes ln(C /W ) into a risk-free component (cw rf ), an excess return component .3
.3
(cw rp ) and a consumption growth component (cwc ). .2
.2 12 / 14
2000
2010
-.10 1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
1990
2000
2010
Predicting Global Real Risk-free Rates
2000
2-years ahead
.08
.04
.00
-.04 actual fitted
-.08
2010
-.12 1920
1930
1940
1950
1960
1970
1980
10-years ahead
The figure forecasts the 10-year average future short risk-free rate using ln(C /W ). Graph includes 2 standard deviation bands. 2011-2021 forecast: −2% 13 / 14
Low Real Rates: Why and How long? I
Empirical evidence favors global financial boom/bust cycle
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Deleveraging post crisis: increased demand for ‘safe’ assets
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Little evidence for technological slowdown or demography factors
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How long? Into next decade! (unless unexpected shock such as a big change in macroeconomic policy)
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