Excerpt:
"Several hypotheses might explain the decline in the natural rate of interest:
- As income inequality has risen over the past few decades, resources have shifted from poorer households to richer ones. To the extent that the rich have higher propensities to save, more money flows into capital markets to fund investment.
- The Chinese economy has grown rapidly in recent years, and China has a high saving rate. As this vast pool of savings flows into capital markets, interest rates around the world fall.
- Events like the financial crisis of 2008 and the current pandemic are vivid reminders of how uncertain life is and may have increased people’s aversion to risk. Their increased precautionary saving and especially their greater demand for safe assets drive down interest rates.
- Since the 1970s, average economic growth has slowed, perhaps because of a slower technological advance. A decline in growth reduces the demand for new capital investment, pushing down interest rates.
- Old technologies, such as railroads and auto factories, required large capital investments. New technologies, like those developed in Silicon Valley, may be less capital-intensive. Reduced demand for capital lowers interest rates.
- Some economists, most notably the New York University professor Thomas Philippon, have suggested that the economy is less competitive than it once was. Businesses with increasing market power not only raise their prices but also invest less. Again, reduced demand for capital puts downward pressure on interest rates."
https://www.nytimes.com/2020/12/04/business/low-interest-rates-puzzle.html
I would propose another one. The rise of Islamic finance, where interest rate is forbidden.
Image from Internet.
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