One of the more prominent macroeconomic trends in recent decades has been the prolonged negative trend in nominal and real interest rates (see Figure 1).^[3] The real interest rate is approximately equal to the interest rate minus the average inflation rate over the duration of the loan.

Figure 1. Yields, nominal government bonds, 10 year maturity Per cent

At present, the trend may seem distant, but how it develops in the future is an important question for how interest rates may develop once inflation stabilises around the inflation target again.

Although central banks have the ability to control interest rates in the short term, most economists believe that central banks have limited ability to influence nominal and real interest rates in the long term. The most common explanations for the trend decline in interest rates are the global savings surplus, the lack of investment opportunities, and the slowdown in productivity growth.^[4] See, for example, Bauer and Rudebusch (2020), Bernanke (2005), Lundvall (2020), Summers (2014), Gordon (2016) and Flodberg (2024). What these factors have in common is that they are slow-moving and probably beyond the control of monetary policy.