Kevin Daly, 18 November 2016

There is an increasing consensus that global ‘excess saving’ has contributed to a reduction in equilibrium real interest rates. This implies a decline in yields of all assets including, but not restricted to, government bond yields. This column argues that since the turn of the century, the global economy has also been characterised by a rise in the yields on quoted equity, a feature for which the standard excess saving story cannot easily account. A separate explanation is that an increase in the global risk premium has increased the wedge between risk-free interest rates and the real required return on risky investments. 

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