Note: Trend line in black is GDP-weighted among countries. Chart source: The Economist
- 1. Global real, long-term rates exhibit a gentle but firm downward trend (averaging about -1.6% every 100 years), and the evidence is strongly consistent with the hypothesis that they are stationary around this trend. In other words, rates tended to mean revert around this trend over long periods.
2. The only two events to disrupt the trend were the Black Death and a wave of sovereign-debt defaults in the late 1550s. All other deviations — including after the founding of America’s Federal Reserve in 1913 and the advent of inflation-targeting central banks — could not be distinguished statistically from random chance.
3. The 700-year pattern suggests that current real rates should be about 0.7%. The authors speculate that the trend may be more likely to flatten out as rates approach negative territory than to continue further downward.