Abstract

ABSTRACT:

Real risk-free interest rates have trended down over the past 30 years. Puzzlingly, in light of this decline, (1) the return on private capital has remained stable or even increased, creating an increasing wedge with safe interest rates; (2) stock market valuation ratios have increased only moderately; (3) and investment has been lackluster. We use a simple extension of the neoclassical growth model to diagnose the nexus of forces that jointly accounts for these developments. We find that rising market power, rising unmeasured intangibles, and rising risk premia play a crucial role, over and above the traditional culprits of increasing savings supply and technological growth slowdown.

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Additional Information

ISSN
1533-4465
Print ISSN
0007-2303
Pages
pp. 147-250
Launched on MUSE
2019-09-05
Open Access
No
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