The economic landscape:
structural change, global R *
and the missing-investment
puzzle - speech by Andrew
Bailey
Given at the Official Monetary and Financial Institutions Forum
Published on 12 July 2022
Andrew Bailey discusses new research which looks at the global factors that have
affected the trend real interest rate over the past sixty years or so.
Speech
Introduction
Thank you. It is a pleasure to speak at this event hosted by the OMFIF. In challenging times like
those we are currently facing, the independent platform you provide - which brings the public and
private sector together to discuss issues relating to central banking, economic policy and public
investment - is more important than ever.
The dominant theme for central banks around the world currently is the very elevated level of
inflation. The Bank of England is certainly no exception, with UK CPI inflation reaching 9.1% in
May, and projected to increase further to slightly above 11% by October.
In view of continuing signs of robust cost and price pressures, including the current tightness of the
labour market, and the risk that those pressures become more persistent, the Bank's Monetary
Policy Committee voted to increase Bank Rate by a further 0.25 percentage points at its latest
meeting in June. This was the fifth increase in rates since December, taking Bank Rate to 1.25%.
In the Minutes of that meeting, the MPC emphasised that it will take the actions necessary to
return inflation to the 2% target sustainably in the medium term, in line with its remit. The scale,
pace and timing of any further increases in Bank Rate will reflect the Committee's assessment of
the economic outlook and inflationary pressures. The Committee will be particularly alert to
indications of more persistent inflationary pressures, and will if necessary act forcefully in
response. Bringing inflation back down to the 2% target sustainably is our job, no ifs or buts.
Tonight I will step back from the current situation and consider some of the longer-term forces
affecting our economy, and shaping the economic landscape in which monetary policy is
conducted.
Assessing the policy landscape
Monetary policymakers are typically focused on cyclical movements in the economy, since
monetary policy is often thought to have its most powerful effect on inflation 18-24 months ahead.
As cyclical shocks hit the economy, monetary policymakers must analyse incoming data to identify
the underlying causes and form a view on their implications for the outlook for GDP and inflation.
Adjusting policy in response to the cyclical shocks in the foreground of the macroeconomic picture
is therefore a core part of our role.
In the background of this picture, however, are some slow-moving but important structural
changes, such as trends in population and demographics, technological changes (like increased
automation and the rise of intangible capital), and environmental factors (like climate change and
the transition to net zero). These slow-moving forces may not influence the setting of monetary
policy meeting by meeting. But understanding the broader policy landscape is important, because
it provides insights into the economic trends that will shape policy decisions in the longer term.
Economists have developed a number of so-called 'equilibrium' concepts that help to summarise
key parts of the policy landscape. Of particular relevance for my speech today is the 'equilibrium
real interest rate', which is the hypothetical real interest rate that would sustain output at potential
and inflation at target.[1]
Because the equilibrium real interest rate is a theoretical variable, rather than one we can directly
observe, it must be estimated and several approaches have been developed to do so.[2] All of
these estimates are, however, associated with a high degree of uncertainty. As a result, the
equilibrium real interest rate is typically used to look back on past policy and its stance, or to
provide an indication of the general outlook for interest rates over the coming years, rather than as
a direct guide to policy.
In the August 2018 Inflation Report, the MPC set out its framework for thinking about the
equilibrium interest rate, which is also described in further detail in a background paper co-
authored with Bank staff that will be published alongside this speech.[3] That framework
decomposes the equilibrium real interest rate, sometimes called r*, into the sum of two
components. The first component, called the 'trend real rate' or upper-case R* for short, is driven
by long-term structural factors. The second component of (lower-case) r* reflects the effects of
cyclical shocks to both aggregate demand and supply and so can vary substantially over the short
to medium term.[4]
My focus today is on the structural narrative that shapes the policy landscape in the long run.
Accordingly, I will look at the trend real rate (upper-case R*) and in particular at its determinants at
the global level over the past sixty years or so. For an open economy like the United Kingdom, the
trend real rate is pinned down by global forces; as capital is free to move around the world,
interest rates would depend on the balance of savings and investment in other countries as well as
the United Kingdom. Global R* thus acts as a long-term anchor for the UK's domestic equilibrium
real interest rate. Understanding the relative importance of the different secular factors that drive
Global R*, therefore, sheds light on the forces that may ultimately shape the evolution of domestic
real interest rates.
While Global R* affects the level around which equilibrium real interest rates fluctuate over the
longer term, it abstracts from the shorter-term cyclical forces at play. So let me be very clear that
nothing I say today is intended to be a signal about the near term path of the equilibrium real
interest rate in the United Kingdom or indeed Bank Rate over the MPC's policy horizon. Even if
the trend global real rate remains low, we may still see a rise in nominal policy rates and
equilibrium real interest rates in the short to medium term. In other words, Global R* is an
important underpinning, but it is not a useful guide to real-time policymaking.
Since real interest rates are an important determinant of investment, in today's speech I will also
consider the extent to which investment has responded to movements in the trend real rate. As I
will discuss in more detail later, the determinants of, and prospects for, investment have important
implications for another equilibrium concept that helps us to understand the policy landscape:
potential output, which is the hypothetical level of output that could be produced if all resources
were fully employed.
Global R*
To illustrate the context, Chart 1 shows the UK ten-year real interest rate, measured directly from
index-linked bond prices, plotted to the end of June of this year. Two things stand out immediately.
The first is that the real interest rate can be quite responsive to cyclical shocks, sometimes
moving by a percentage point or more in a matter of months. Indeed, in the past few months we
have seen a relatively sharp and sizable increase. Whether such movements persist depends on
the underlying shocks driving real interest rates. For example, we saw a similar rise in the ten-year
real interest rate after the global financial crisis and that did not persist when inflation returned to
target.
The second observation is that, beneath the month-to-month volatility, there appears to have been
a fairly steady downward trend since the mid-1980s. As shown in Chart 2 other economies have
experienced a similar trend in real interest rates.[5]
Chart 1: The UK ten-year real interest rate has fallen over recent decades
Note: Ten-year zero coupon yield (spot interest rate) computed from UK index-linked government debt. See yield curves.
Source: Bloomberg Finance L.P, Tradeweb and Bank calculations.
Chart 2: There has been a trend decline in real interest rates in most countries
Note: High-income countries include Finland, France, Italy, Japan, Netherlands, Spain, the United Kingdom and the United
States. See Appendix A.2 to Bailey et al. (2022) for data definitions. Source: Authors' calculations using EU KLEMS, the
Penn World Table 10.0 and the Jordà et al. (2017) Macrohistory Database. See Appendix A.1 to Bailey et al. (2022) for more
details.
This pattern is suggestive of a structural trend in the underlying global trend real interest rate, in
other words Global R*. This concept can be estimated, using a variety of statistical methods, all of
which extract an underlying slow-moving trend from the more volatile data.
Some of these estimates, from a range of different academic papers, are shown in Chart 3. The
teal line shows a new estimate by Bank staff, based on data for 31 high-income countries. Though
there are relatively wide error bands around this central estimate, and alternative estimates from
the literature exhibit different patterns, the direction of travel has been clear. In other words, a
decline in Global R* over recent decades is common across estimates.
Chart 3: Empirical measures of Global R* have fallen in recent decades
Source: Consumer prices indices, short-term interest rates and government bond yields for the calculation of Cesa-Bianchi
et al. (2022)'s global measure of R* from the Jordà et al. (2017) Macrohistory Database and Eikon Refinitiv. Other estimates
from Del Negro et al. (2019), Hamilton et al. (2016), Holston et al. (2017).
While these statistical estimates help us to understand the dynamics of the trend real rate, they do
not tell us why it has been falling. The dynamics of the trend real rate are determined by
slowmoving structural factors that affect the balance between the demand for capital for production and
the stock of wealth available to finance it.[6] Understanding the underlying structural trends that
drive this balance requires a structural model.
Recent research by staff at the Bank has developed a model of the world economy that brings
together several key structural factors that could account for the decline in Global R*.[7] These are
productivity growth, population growth, longevity, the relative price of capital, and government debt.
The structural model generates a path for Global R*, as well as a decomposition of the
contribution of each of these factors.
Some key results of this exercise are laid out in Table 1. This includes both the baseline model
simulation, and a range of alternatives that vary some key underlying parameters and
assumptions. It focuses on the period since 1985, given the attention it has received in much of
the existing literature. The sample ends in 2015 due to the process used to extract the underlying
trends in the structural factors and the timeliness of some of the data required for the simulation.[8]
Given the focus on slow-moving structural drivers, omission of the most recent data is unlikely to
have a material effect on the estimate of the trend real rate. And I will come on to consider the
more recent period and the potential impact of the Covid pandemic later in the speech.
Table 1: Changes in Global R* from structural and empirical models
Structural model Baseline Range
1985-2015 -1.9 (-3.3, -1.1)
Of which:
Productivity growth -0.9 (-1.2, -0.3)
Population growth -0.1 (-0.5, -0.0)
Longevity -1.0 (-1.8, -0.8)
Empirical model Median 5%-95%
1985-2015 -1.9 (-2.4, -1.3)
Note: For the structural model, the table reports the estimate of Global R* in the baseline simulation, together with the
minimum and maximum across the sensitivity tests. For the empirical model, the table reports the median estimates of
Global R* together with the 95 percent posterior intervals. Source: Cesa-Bianchi et al. (2022).
Table 1 shows that, in the structural model, Global R* falls markedly between 1985 and 2015. The
total decline of 1.9 percentage points is driven by the response to the five global trends mentioned
earlier.[9] The baseline structural model simulation matches the median change over the same
period from the statistical model in the earlier chart (reported in the last row of the table), though
both are subject to a wide range of uncertainty.[10]
With respect to the main drivers of this decline, two factors - population ageing and a slowdown in
productivity growth - play the largest roles in explaining the dynamics of Global R*.
The productivity growth slowdown across advanced economies has been discussed extensively in
existing work.[11] Productivity growth impacts R* through firms' optimal level of capital for
production, in other words the demand for capital from firms. Lower productivity reduces the
potential returns on new investment (the marginal product of capital) and this reduces firms'
demand for capital at a given interest rate. In equilibrium this reduction in demand lowers R*. The
model simulations suggest that this effect accounts for almost half of the decline in Global R* over
this period.
Population ageing has been driven by a decline in population growth rates relative to the high
levels seen following the Second World War and a marked increase in life expectancy. Importantly,
however, in the model the impact of ageing comes almost entirely from the rise in longevity, rather
than the decline in population growth rates.
What this means is that the effect of population ageing on the trend real rate is not a consequence
of the so-called 'baby boom'. Instead, it reflects the fact that the oldest generations in the
population - including older retirees - also tend to be those who have accumulated the most
wealth. This naturally occurs as households accumulate wealth over their working life, in order to
fund their retirement. This means that a shift in the age distribution towards these cohorts, in other
words population ageing, will increase total wealth in the economy.[12] The equilibrium real interest
rate falls to incentivise firms to invest this additional wealth into productive capital.
It is important to note that the mechanism is driven by the relative wealth levels of different cohorts
within the population. It is true that, on average, retirees have low savings rates, as they run down
their wealth to finance their retirement. However, the data show that in practice this effect is
typically not very strong, so that the average household appears to broadly maintain their wealth
during retirement. This tempers the extent to which the retirement of the baby-boom generation
reverses the impact of ageing on the real interest rate.[13]
These results imply that the effect of population ageing on Global R* has been large, and is
expected to persist. While the paths of the underlying drivers are estimated only until 2015, the
model-based simulation implies that the equilibrium real interest rate will continue to adjust until
the population structure and stock of global capital reach an eventual 'steady state'. Indeed, the
simulation implies that the effects of past structural trends would continue to reduce Global R*,
perhaps by another 1 percentage point, over the very long run.[14]
So, importantly, what this model, and the data behind it, are telling us is that we should not expect
that ageing, and the retirement of baby boomers, will lead to significant upward pressure on
Global R* over coming years or decades. The substantial contribution of population ageing to the
decline in Global R* in the past stems from the steady increase in longevity, and this mechanism
leads to permanently lower Global R*.
But, of course, this is not a precise forecast of the level of Global R*. Among the risks to this
assessment are the other potential drivers that have not been considered in this model. For
example, one potentially important driver, which is absent from the structural model simulation, is
the rise in inequality. Existing results tend to suggest that the rise in inequality, as seen in recent
decades, puts downward pressure on Global R*.[15] Another widespread trend that could push in
the opposite direction is the growth in the provision of publicly-financed social security and
healthcare. Rachel and Summers (2019) argue that that this trend would both reduce the
incentives for households to accumulate wealth and crowd out private capital, resulting in upward
pressure on Global R*.
Of course, both inequality and social security provision are themselves endogenous to other
underlying structural forces, including the demographic trends that I have already talked about. So
incorporating these into our narrative requires a fuller consideration of these interactions.
The Missing-Investment Puzzle
I will now consider one of the potential implications of the past decline in Global R*, focusing on
investment.
Standard neoclassical theory, such as that underlying the structural model considered earlier,
implies a strong co-movement between the safe real rate and rate of return on capital. This
suggests that we would expect a fall in Global R* to be associated with a fall in the return on
capital. But while risk-free rates have been falling globally in recent decades, measures of the rate
of return on productive capital across high-income economies have not.[16] As the return on
capital has remained stable, as shown in Chart 4, while the safe rate and cost of funding has
declined, a wedge has opened up between the return on firms' investment and the cost of
financing it.[17]
Chart 4: Realised real return on capital has been relatively stable
Note: High-income countries include Finland, France, Italy, Japan, Netherlands, Spain, the United Kingdom and the United
States. See Appendix A.2 to Bailey et al. (2022) for data definitions. Source: Authors' calculations using EU KLEMS, the
Penn World Table 10.0 and the Jordà et al. (2017) Macrohistory Database. See Appendix A.1 to Bailey et al. (2022) for more
details.
Chart 5 plots the wedge between the return on capital and risk-free rates for a broad group of
high-income economies since 1990.[18] If the return on capital had comoved with the risk-free
rate, the wedge would have been stable over time. However, the wedge has increased in most
countries, as shown by the blue swathe. The median increase of around 5 percentage points is
broadly similar to the rise in the wedge in the United Kingdom (shown in orange).
Chart 5: Wedge between the return on capital and risk-free rates has risen
Note: High-income countries include Finland, France, Italy, Japan, Netherlands, Spain, the United Kingdom and the United
States. See Appendix A.2 to Bailey et al. (2022) for data definitions. Source: Authors' calculations using EU KLEMS, the
Penn World Table 10.0 and the Jordà et al. (2017) Macrohistory Database. See Appendix A.1 to Bailey et al. (2022) for more
details.
In standard economic theory, this wedge, between the return on firms' investment and the cost of
financing it, is a measure of firm profitability. As such, it is a key determinant of investment.
Accordingly, we might expect to have seen an increase in investment activity alongside the recent
increases in the wedge. But, while the wedge has increased, across the same group of countries,
as shown in Chart 6, investment has steadily declined, or, at best, remained stable. In the United
Kingdom, shown in the orange line, this decline has been particularly stark since the late 1990s.
So, across high-income countries, investment has been low in spite of a rising wedge between
the realised return on capital and funding costs: this is what I will refer to as the 'missing-
investment puzzle'.
Chart 6: Nominal investment-to-GDP ratio has declined
Note: High-income countries include Finland, Italy, Netherlands, Spain and the United Kingdom. Figure A.3 in Appendix to
Bailey et al. (2022) shows that this result is true for a larger sample of countries from 1987. See Appendix A.2 to Bailey et al.
(2022) for data definitions. Source: Authors' calculations using EU KLEMS, the Penn World Table 10.0 and the Jordà et al.
(2017) Macrohistory Database. See Appendix A.1 to Bailey et al. (2022) for more details.
To better understand this missing-investment puzzle we conduct a regression analysis, using
historical national accounts data to study the relationship between investment and the wedge
since 1970. Chart 7 shows the observed investment rate (orange line) and its estimated value
from its historical relationship with the wedge (blue dashed line). The increasing unexplained gap
between the two lines illustrates and quantifies the extent of the puzzle. It shows that UK
investment has remained persistently below the levels that would have been predicted from the
observed changes in the wedge since the early 2000s.
Chart 7: The missing-investment puzzle in the United Kingdom
Note: The chart shows the observed investment rate (net investment to lagged capital stock, in orange), and its value
predicted from its estimated historical relationship with the wedge (in blue), both in percentage points. See Appendix B to
Bailey et al. (2022) for full details. Source: ONS, Jordà et al. (2017) Macrohistory Database and authors' calculations.
The key question, then, is what structural factors can account for this puzzle? To explore this I will
draw on new analysis in the accompanying paper, using industry-level data for the United
Kingdom.[19] That analysis considers the role of mismeasurement of capital, as well as the role of
competition, financial frictions and corporate governance.
In contrast with the existing literature studying the United States, the results find little role for
changes in competition.[20] For the United Kingdom, intangible investment plays the most
important role.
Indeed, there has been a strong trend in the composition of investment by firms, moving away
from physical capital, such as buildings and machinery, towards what is called intangible capital,
such as research and development, software, databases and branding. Measuring investment in
intangible assets is challenging. So, although national accounts methodologies are continually
improving, existing approaches might be missing part of firms' investment. That would result in an
over-estimation of the observed return on capital and, in turn, the wedge.[21]
This issue can be partly addressed using newly-available data covering a broader range of
intangible assets that are currently not included in the national accounts. These data can be used
to construct more comprehensive measures of net investment rates and the wedge between the
return on capital and risk-free rates.
Adjusting for intangibles, by re-running the regressions on a measure of the wedge constructed
using the new data, reduces the size of the missing-investment puzzle as shown in Chart 8. It
shows the deviation of the observed investment rate from the rate predicted by its estimated
historical relationship with the wedge: what I have identified as the puzzle. The chart compares this
deviation when the historical relationship is estimated using two alternative data sources. The
orange line shows the case when unadjusted data are used and the blue line shows the case
when the relationship is estimated using data adjusted for intangibles. When the adjusted data are
used, the gap is smaller throughout the period and almost disappears in recent years.
Chart 8: Accounting for intangibles reduces the missing-investment puzzle
Note: The orange line shows the investment puzzle using industry-level data, and the shaded area around it is the 95%
confidence intervals. The line shows the estimated year fixed effects from an industry-level regression of investment rates
on the wedge, including industry fixed effects, and standard errors clustered at the industry level. See Appendix B to Bailey
et al. (2022) for full details. The blue line shows the same statistic from the regressions in which both investment rates and
the wedge are adjusted to include intangibles. See Appendix A.2 to Bailey et al. (2022) for a discussion of the adjustment.
Source: ONS, KLEMS, Jordà et al. (2017) Macrohistory Database and authors' calculations.
The remaining puzzle is mostly concentrated immediately after the global financial crisis, and so it
is possible this is not driven by structural factors, but rather the lingering impact of the global
financial crisis, for example related to the sluggish demand recovery or financial frictions.[22]
While the results suggest an important role for intangibles in explaining the missing-investment
puzzle, a few notes of caution are in order. It could be that certain drivers of investment, such as
financial frictions, are captured more accurately only at more granular level, such as in firm-level
data. Moreover, there could be large non-linearities related to the nature of the global financial
crisis that cannot be captured by the simple regression framework used above. So there is clearly
still lots of work to do, and I hope to see more research dedicated to this subject in the future.
Intangibles and Productivity
I can now come full circle and consider the implications of the findings so far for another important
equilibrium concept: potential output. As intangibles seem to be important for the puzzling
weakness of investment, can they also help us rationalise recent developments in productivity and
hence the implications for potential output?
Since the global financial crisis we have observed a substantial productivity puzzle. Average
labour productivity growth in the United Kingdom has been around 1.3 percentage points lower
since the crisis. While intangibles help to explain the missing investment puzzle, their effect on
productivity is mixed as, if anything, there is evidence that they might be driving this productivity
slowdown. Chart 9 shows that intangible-intensive industries have experienced the strongest
slowdowns in labour productivity growth since the global financial crisis, consistent with a recent
study by my colleague Jonathan Haskel.[23]
Chart 9: Productivity slowdown is stronger in intangible-intensive industries
Note: The y-axis shows the change in average labour productivity growth over 2008-2018 with respect to the 2000-2007
period. The x-axis covers the average share of intangible assets in total capital. Each 'bubble' represents an industry, with
the area of the bubbles reflecting its share in total employment within each country, thereby measuring the industry's
contribution to aggregate labour productivity growth. EU4 consists of Germany, Spain, France and Italy. Source: Source.
ONS, KLEMS and authors' calculations, see Appendix A.1 to Bailey et al. (2022) for more details.
Unfortunately, there does not seem to be a consensus yet on what exactly lies behind this
observed relationship. A growing literature shows that there are barriers to intangible investment,
for example because intangible assets cannot be easily used as collateral.[24] Thus, the tightening
of financial conditions following the global financial crisis could have disproportionally hindered the
development of intangible-intensive industries, with potentially long-term consequences for
productivity growth.[25] However, intangible investment has recovered in recent years, while
productivity growth has remained weak. Could it be, perhaps, that the barriers to intangible
investment benefit investment by low-productivity firms? Or are other factors at play?
Other recent studies have highlighted the impact of the intangible economy on competition.
Intangible technologies tend to require large upfront investments, what economists call fixed costs.
This may give firms with high-intangible adoption a competitive advantage and make it difficult for
new innovative firms to enter the market. In that case, entrenched incumbent firms may have fewer
incentives to innovate, potentially slowing innovation adoption in the long run.[26]
However, the UK data do not seem to provide strong evidence in favour of this second
mechanism, compared with research studying the United States. While the US literature reports a
decline in business dynamism and an increase in market power alongside the rise of intangibles,
business dynamism seems to have been less affected in the United Kingdom. For example, firms'
entry and exit rates have been stable in the United Kingdom since the early 2000s, in contrast to
the declining rates observed in the United States.[27]
Taking stock and looking ahead
My remarks today have purposefully abstracted from short-run influences on the macroeconomy in
order to focus on the longer-term structural trends that have driven the secular decline in Global R*
and the puzzling weakness of investment in the United Kingdom and other advanced economies.
Why do these secular developments matter for central banks?
The level of the trend real rate has important implications for the conduct of both monetary and
financial policies. In a low interest rate environment, other things equal, monetary policy may find
itself more often constrained by the effective lower bound on nominal interest rates (Bernanke et
al., 2019). But prolonged periods of low interest rates may also pose financial stability risks via
greater risk taking (Cunliffe, 2019).
Understanding the trends in investment is also key given the importance of investment in driving
long-run growth and productivity. In turn, productivity growth is an important determinant of potential
output. Estimates of potential output are used to assess the size of the output gap, or level of
spare capacity, which influences the degree of inflationary pressure in the economy. Such
estimates can therefore have an important influence on the judgements that inform monetary
policy decisions.
The analysis I have discussed so far has looked at a number of secular trends over the past few
decades. In the current uncertain environment, it is a challenging time to make predictions about
the future. Nonetheless, to conclude let me say a few words on what these results might imply for
the policy landscape going forward.
As I discussed earlier, the new analysis presented in this speech suggests that the effects of the
key drivers of Global R*, particularly increasing longevity, are expected to persist. Absent a
significant reversal in the key trends that have driven down Global R*, we may expect it to remain
low. So it is not unreasonable to expect that Global R*, the long-run anchor for UK equilibrium
interest rates, will remain low. Therefore, cyclical adjustments in short-term nominal interest rates -
like those we are currently witnessing in the United Kingdom and abroad - will for the foreseeable
future continue to be played out against the backdrop of low global equilibrium real interest rates.
While we have considered several important drivers of Global R* in the past, other factors may
come into play over time. You may wonder, for example, whether the pandemic could have
impacted some of the key drivers of Global R*, such as productivity growth.
The simple answer, of course, is that we do not yet know. It is too soon to tell what the long-run
impact of the pandemic will be for the economy. These impacts are also difficult to disentangle
from the effects of the change in trading arrangements between the United Kingdom and the
European Union that may already be weighting on productivity (Bank of England, 2021).
However, it is worth bearing in mind that, while the pandemic was a large and unprecedented
economic shock, with profound changes to labour markets and the way we work, it is possible that
its long-run effects on productivity will be small. For example, the latest ONS estimates of UK
labour productivity appear to be in line with pre-pandemic trends. This headline figure, of course,
masks several factors at play. There are compositional effects, which appear to have raised
productivity measures during the pandemic, because the worst-hit sectors were also the ones with
lowest labour productivity. There were also unprecedented challenges to measuring productivity,
including the measurement of hours worked during lockdowns. Overall, the long-run impact of the
pandemic on trend productivity growth, and hence trend R*, is highly uncertain, though plausibly
small.
Perhaps a more salient emerging risk for Global R* is the impact of climate change and the
transition to net zero. Neither the size nor direction of this effect are clear. For instance, increased
investment by firms looking to adopt the latest green technologies could raise equilibrium interest
rates, at least during the transition. On the other hand, Global R* could be pushed down due to
higher volatility and uncertainty, including uncertainty about the transit