Selection, Patience, and the Interest Rate (updated 2023)

Working Papers from Business School - Economics, University of Glasgow

Abstract: The interest rate has been falling for centuries. A process of natural selection that leads to increasing societal patience is key to explaining this decline. Three observations support this mechanism: patience varies across individuals, is inter-generationally persistent, and is positively related to fertility. A calibrated dynamic, heterogenous-agent model of fertility permits us to isolate the quantitative contribution of this mechanism. Selection can explain most of the decline in the interest rate, a fact that is robust to a number of model extensions. Quantitative implications are consistent with other facts, such as the steady increase in the investment rate since 1300.

Keywords: Interest rates; selection; fertility; patience; heterogenous agents (search for similar items in EconPapers)
JEL-codes: E21 E43 J11 N30 O11 (search for similar items in EconPapers)
Date: 2022-07
New Economics Papers: this item is included in nep-dge, nep-evo, nep-fdg and nep-his
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2022_08

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