**Table 2** Summary statistics

||||Nomin|al interest|Infl|ation|Ex-ante|real rate|
|---|---|---|---|---|---|---|---|---|
||||AE|EMDE|AE|EMDE|AE|EMDE|
|Post-war|1970 - 1983|_mean_|9.3|8.9|10.1|11.8|-0.3|-1.7|
|period||_st.d._|4.1|5.9|5.9|11.8|3.9|4.4|
|Great|1984 2007|_mean_|6.6|12|3.4|9.1|2.7|3.1|
|moderation|-|_st.d._|4.6|9.1|3.3|13.8|2.5|4.4|
|Great recession|2008 2019|_mean_|0.8|6.6|1.5|4.8|-1.0|1.3|
|and aftermath|-|_st.d._|1.4|3.9|1.4|4.2|1.2|3.5|
|ll l|1 21|_mean_|5.9|9.9|4.8|8.5|1.0|1.6|
|Fu sampe|970 - 09|_st.d._|5|7.8|5.1|11.8|3.2|4.5|

**Note:** AE stands for advanced economies.

# **IV. Results**

# _a. Equilibrium interest rates at the country level_

We estimate the equilibrium interest rate for 50 countries from 1970 or from whenever the necessary data are available. We plot all results in Appendix A2 and the data series are available upon request. Interest rate volatility varies both in advanced economies and EMDEs. However, as expected, it is more volatile in EMDEs and was especially high in the first half of the 1980s and the 1990s.<sup>18</sup>

# _b. The global equilibrium interest rate_

The global equilibrium interest rate anchors equilibrium rates in countries that are economically open. It can be thought of as the equilibrium rate to which country-specific rates would converge in the longrun if there were no distortions or shocks. It is determined by expectations of global trend growth and other factors determining desired savings and investment. Among the factors driving equilibrium rates away from this rate are both global and country-specific temporary factors (Rachel and Smith 2015).<sup>19</sup> Figure 1 shows the global equilibrium interest rate from 1983 until 2019, defined as the GDP weighted average of all countries other than China, for which data are only available from 1990 onward.<sup>20</sup> In the 1980s, the global equilibrium interest rate was around 3 percent, which was relatively high, consistent with the economic boom resulting in high global fixed investment. The global equilibrium rate peaked in 1989 when it was just above 3.5 percent. Subsequently in the 1990s it declined slowly but steadily. From 2000 to 2004, the downward trend became much steeper and the global equilibrium interest rate dropped from around 2.0 percent in 2000 to below 0.5 percent in 2003. It remained low in the following years and took another hit due to the global financial crisis. It plunged to negative territory in 2009 and declined further to a minimum of almost -1.0 percent in 2013. Since then it recovered only slightly and in 2019, the last year in the sample, it stood at -0.5 percent. The uncertainty around the estimates is not larger than for many other estimation strategies, despite this sample including many EMDEs. The

> 18 The average time-varying volatility across advanced economies and EMDEs is plotted in Appendix A3. 19 For a detailed discussion of how the global equilibrium rate is related to country-specific equilibrium and policy rates, refer to Rachel and Smith (2015).

> 20 GDP values in constant 2010 US$ come from the World Bank and OECD national accounts data. China is included in a robustness check in section 4.3.

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