American Economic Review Vol. 107 No. 5 2017

Rents, Technical Change, and Risk Premia Accounting for Secular Trends in Interest Rates, Returns on Capital, Earning Yields, and Factor Shares

Ricardo J. Caballero¹; Emmanuel Farhi²; Pierre‐Olivier Gourinchas³

¹ Department of Economics, MIT, 77 Massachusetts Avenue, Building E52-528, Cambridge, MA 02139 (e-mail: ) · ² Department of Economics, Harvard University, Littauer 318, 1805 Cambridge Street, Cambridge, MA 02138 (e-mail: ) · ³ Department of Economics, UC Berkeley, 697D Evans Hall, #3880, Berkeley, CA 94720 (e-mail: )

Abstract

The secular decline in safe interest rates since the early 1980s has been the subject of considerable attention. In this short paper, we argue that it is important to consider the evolution of safe real rates in conjunction with three other first-order macroeconomic stylized facts: the relative constancy of the real return to productive capital, the decline in the labor share, and the decline and subsequent stabilization of the earnings yield. Through the lens of a simple accounting framework, these four facts offer suggestive insights into the economic forces that might be at work.

DOI

10.1257/aer.p20171036

Volume

107

Issue

5

Pages

614-620

Language

en

Sources

crossref openalex

Cite

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