30 January 2022

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800 years of global real interest rates

Author: Luigi Campopiano

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The Bank of England reconstructs global real interest rates (on an annual basis) from the fourteenth to the present and the data shows rates always falling. Some of the earliest data in this series represent municipal debts issued in early Italian banking centers such as Genoa, Florence or Venice, during the early stages of the Italian Renaissance.

Early data sets on lending to nobles, merchants, and kingdoms eventually merge with more contemporary data from central banks, and over the centuries it is clear that falling interest rates are not a new phenomenon. In fact, on average, real rates have decreased by 0.016% per year since the fourteenth century. This same spectacle can also be seen in more modern times:

Real long-term rates (private debt, non-negotiable loans or global sovereign debt) have had a trend that makes it clear how and what one should always expect once the "zero limits" of the present day have been reached: just enter them in a long-term historical context and it should have been clear that long-term real rates would be negative. Faced with their long-term context, currently depressed real rates are converging back to the "historical trend", a trend that leads to "secular stagnation". The downward trend in real rates coincided with a constant and long rise in public budget activity (and persisted in a variety of monetary regimes).