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Aaron Brown

Negative Interest Rates Aren’t Such a Departure After All

A Yale professor’s paper shows they have always been with us and challenges the notion of a normal level.

They had negative rates, too.

They had negative rates, too.

Photographer: Joe Raedle/Getty Images

A new paper by Yale professor Paul Schmelzing is a reminder that it ain’t what we don’t know that causes trouble, but what we know that ain’t so. Two charts in particular refute conventional wisdom about long-term real interest rates.

This chart, derived from one of Schmelzing’s, shows real interest rates in developed markets for the last 600 years. It shows a clear historical downtrend, with rates falling about 1% every 60 years to near zero today. Rates do tend to revert to a mean, but that mean seems to be declining.