Researcher Examines Real Interest Rates Over Seven Centuries

Gabelli100 | Jun 07, 2021 | Gabelli School of Business

Investors in the Italian Renaissance could have predicted today’s low interest rates, according to Paul Schmelzing, Ph.D., who dove deeply into American and European economic archives to research real interest rate dynamics. He reconstructed a global timeline that covered 82% of the GDP from 1311 to 2018 and concluded that today’s real interest rates are exactly what one would expect based on historical trends over the last 700 years.

Schmelzing, a postdoctoral research associate at the Yale School of Management, discussed his findings in a Gabelli School Centennial Virtual Speaker Series webinar sponsored by the Gabelli Center for Global Security Analysis, the CFA Society New York, and the Museum of American Finance. He was joined by financial journalist and historian James Grant along with Richard Sylla, Ph.D., professor emeritus of economics at New York University’s Stern School of Business.

In terms of future projections, more than likely, interest rates will stay where they are or possibly even dip a bit lower. When asked whether today’s rates could penalize those with more savings, Schmelzing said that banks are not likely to see people pulling their money any time soon.

“Quite a few people think that we can go deeper from here and people will still be content because returns in other asset classes, like the housing market, are falling as well,” he said. “I think you have to see it in a relative rather than an absolute sense. Compare what premium you are getting versus other asset classes when you keep your money at the bank.”