Macro Finance Cluster Seminar: Rana Sajedi - The Natural Rate of Interest in Small-Open Economies: Asymmetries and Fragmentation
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A/D/101, Alcuin College, Campus West, University of York (Map)
Event details
Author: Rana Sajedi (Bloomberg)
Title: The Natural Rate of Interest in Small-Open Economies: Asymmetries and Fragmentation
Abstract: This paper develops a structural model to study the trend real interest rate in small-open economies, R ̃∗. Impediments to global capital mobility can drive a wedge between the global trend real interest rate, R∗, and R ̃∗ , necessitating country-specific analyses. Our specific focus is to quantify the evolution of R ̃∗ in the UK, a small-open international financial centre, relative to R∗ in the rest of the world. The model captures six potential drivers of R ̃∗ : productivity growth, population growth, longevity, government debt, risk premia, and fragmentation of global capital markets. Against the backdrop of a decline in global neutral real interest rate R∗ of around 2.5pp in the past half century, the model suggests a more muted decline—of around 1.5pp—in the UK. However, looking ahead, increased geo-
economic fragmentation poses significant upside risks to UK equilibrium rates, of nearly 0.8pp.
Host: Omid Eskandari (York)
Cluster: Macro-Finance Cluster