DP11833 Rents, Technical Change, and Risk Premia: Accounting for Secular Trends in Interest Rates, Returns to Capital, Earnings Yields, and Factor Shares

Author(s): Ricardo Caballero, Emmanuel Farhi, Pierre-Olivier Gourinchas
Publication Date: February 2017
Date Revised: March 2017
Keyword(s): automation, Labor Share, rents, risk premia, technical change
JEL(s): E2, E4, G1
Programme Areas: Financial Economics, International Macroeconomics and Finance, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11833

The secular decline in safe interest rates since the early 1980s has been the subject of considerable attention. In this short paper, we argue that it is important to consider the evolution of safe real rates in conjunction with three other first-order macroeconomic stylized facts: the relative constancy of the real return to productive capital, the decline in the labor share, and the decline and subsequent stabilization of the earnings yield. Through the lens of a simple accounting framework, these four facts offer insights into the economic forces that might be at work.