John Clark wrote:
>If it turns out that productivity increases over the next 10 to 20 years
>faster
>than what most of today's bankers and bond traders think it will, what would
>be the implications for current long term interest rates, should it be higher
>or lower than it is? I would think higher but I'd like to hear what some
>of the
>real economists on the list have to say.
Althought it no longer reflects my opinions about future growth rates,
http://hanson.gmu.edu/fastgrow.html offers a simple model adequate for this.
Interest rates should equal a preference discount rate plus a factor
proportional to the growth rate in consumption. If productivity rises
faster, consumption will rise faster, and so interest should be higher.
Robin Hanson rhanson@gmu.edu http://hanson.gmu.edu
Asst. Prof. Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030-4444
703-993-2326 FAX: 703-993-2323
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