Centuries of Data Forewarn of Rapid Reversal From Low Interest Rates

Forget secular stagnation. One historian says the world is actually in its ninth “real rate depression” and 700 years of data show that – when it comes – the turnaround could be sudden.

In research published on the Bank of England’s staff blog, Harvard University’s Paul Schmelzing says most work pointing to a period of permanently lower equilibrium real interest rates is too short term. Instead, he tracked the risk-free rate since 1311 by identifying the dominant asset of each period – starting with sovereign rates in the Italian city states in the 14th and 15th centuries and moving to long-term rates in Spain, then the Province of Holland, the U.K., Germany, and finally the U.S.