year t. the euro area series is based on gdp - weighted data for germany, france, italy and spain. data for italy before 1991, for spain before 1980 and for germany, france and the united states before 1973 are based on jorda et al. ( 2019 ), op. cit. latest observation : 2019. the natural rate of interest the falling trend in yields can be interpreted as a decline in the so - called natural or neutral rate of interest ( labelled as r * in academic research and policy discussions ). the natural rate of interest corresponds to the level of the real short - term interest rate that defines a neutral policy stance : this corresponds to a situation in which the economy is operating at potential and inflation is at its target value, such that there is no reason for the central bank to either inject or withdraw stimulus. in what follows i will explore the causes of this trend decline in r *. causes of the persistent low real yield environment i will structure my discussion of the drivers of r * around three broad driving forces : first, the determinants of potential growth rates ; second, demographics ; and third, diverging developments in the returns on risky and safe financial assets. these three factors are embedded in the textbook economic growth model, which relates the equilibrium rate of interest to economic growth, population growth and the discount rate. i will primarily focus on common international trends, even if cross - country differences in these driving forces have important implications for return differentials and international capital flows. [ 4 ], the potential growth rate one fundamental driver of r * is the potential growth rate of the economy : in a high - growth economy, it takes a higher real interest rate to encourage the volume of saving required for the high investment levels needed to sustain a fast - growing economy. although easier to see with the benefit of hindsight, there has been a sustained decline in the potential growth rate of advanced economies in recent decades : it is estimated to be less than half of what it was 50 years ago ( chart 2 ). this pattern also carries over to expectations about future growth performance. the decline in potential output growth in turn can be attributed to a decline in total factor productivity growth ( chart 3 ) and a corresponding decline in labour productivity growth ( chart 4 ). chart 2 potential output growth and long - term growth expectations ( percentages per annum ) sources : bureau of economic analysis, european commission and consensus economics. notes : the euro area data reflect the changing composition of member states

enjoy many more years in retirement than they did in the 1970s, as chart 9 shows for the euro area. similarly, while in the 1970s and 1980s, the ratio of the elderly ( aged 65 and over ) to the working - age population ( aged 15 - 64 ) was around 20 percent, the european commission projects the old age dependency ratio will rise to over 50 percent by the middle of this century ( chart 10 ), while the ratio of older workers relative to younger workers has trended up significantly over the last decades ( chart 11 ). over the same period, the annual growth rate of the workingage population has fallen from over 1 percent to zero and is projected to turn negative ( chart 12 ). chart 8 life expectancy at birth : historical data and projections ( number of years ) source : world bank. notes : annual data. dashed lines denote projected values. projections begin in 2018. latest observation : 2017 for historical data and 2050 for projections. chart 9 expected number of years spent in retirement for the largest euro area countries ( number of years ) sources : world bank, united nations, eurostat, oecd and ecb staff calculations. notes : the chart reflects the difference between life expectancy at birth in year t and the effective retirement age in year t. the chart is a population - weighted average for germany, france, italy and spain. latest observation : 2017. chart 10 old - age dependency ratios : historical data and projections ( ratios ) sources : world bank, eurostat, oecd and ecb staff calculations. notes : dashed lines denote projected values. for the euro area, historical data are from the world bank and projections are from eurostat. all other historical data and projections are from the oecd. latest observation : 2018 for historical data and 2050 for projections. chart 11 older worker ratio : ratio of 40 - 64 year olds over 15 - 64 year olds ( ratios ) sources : world bank, eurostat, oecd and ecb staff calculations. notes : dashed lines denote data points based on projected values. for the euro area, historical data are from the world bank and projections are from eurostat. all other historical data and projections are from the oecd. latest observation : 2018 for historical data and 2050 for projections. chart 12 working - age population growth : historical data and projections ( year - on - year growth rates ) sources : world bank and ecb staff calculations. notes : annual data. dashed lines denote