…well, at least genuine interest. Although nominal interest rates have been rising since the COVID-19 pandemic, over the long term, real interest rates (i.e., adjusted for inflation) are falling. NBER working papers Obstfeld(2023) provides compelling evidence for this trend. Current effective interest rates are likely in the 1%-2% range. Reasons for this trend include “demographic changes, slowing productivity growth, corporate market power and demand for safe assets relative to supply.” Some charts below illustrate this trend.
One reason this is important to health economics is that many cost-effectiveness analyzes include a discount rate that discounts future health benefits and costs relative to health benefits and costs incurred currently. Typically, the discount rate is related to the real interest rate in the economy. If real interest rates fall, do the discount rates used in cost-benefit models and value assessments typically fall as well?Some people would think so
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