… significant interest at least. In the years following the COVID-19 pandemic, nominal interest rates have been rising, while real (inflation-adjusted) interest rates are falling in the long term. A NBER working paper by Obstfeld (2023) provides compelling evidence of this trend. Current real interest rates are likely somewhere in the 1%-2% range. Reasons for this trend include “demographic shifts, lower productivity growth, corporate market power, and safe asset demand relative to supply.” Some graphics showing this trend are below.
One reason why this would matter to health economics is that many cost-effectiveness analyses include a discount rate that discounts future health gains and costs relative to health gains and costs that accrue in the present. Oftentimes, that discount rate is linked to the real interest rate in the economy. If the real interest rate is falling, should the discount rate used for cost-effectiveness models and value assessment in general also fall? One would think so.
You can read the full paper here.
