Prof. Alex Trew, Ph.D.

Long-term Decline in Real Interest Rates

Alex Trew, in work with Radek Stefanski, has made the observation that real interest rates have been falling for centuries, at least since the 1300s. The standard channels – growth, life expectancy, risk, and so on – do not help explain this decline. As a result, the researchers explore the potential contribution that selection and the evolution of the distribution of preferences over time makes. They find that increasing average (societal) patience is key to explaining this decline. Three observations support this mechanism: patience varies across individuals, in a way measured by Prof. Sünde's work. There is also careful evidence that elements of preferences are at least somewhat inter-generationally persistent. Finally, individual preferences are related with family decisions and, in particular, they find that patience is positively related to fertility. They then build a calibrated dynamic, heterogenous-agent model of fertility that permits them to isolate the quantitative contribution of this mechanism. They find that selection can explain most of the decline in the interest rate, a fact that is robust to a number of model extensions. Quantitative implications are consistent with other facts, such as the steady increase in the investment rate since 1300.

Mr. Trew works on economic history, economic geography and economic growth, with a particular focus on 18th and 19th century England and Wales but more recently on global changes over longer time-periods. While visiting CES he plans to work on projects related to macro history, cultural evolution, demographic change and social preferences. He will also deliver a CES Lecture Series entitled: The Continuity of Change in Macro-history
Alex Trew is Professor of Economics at the University of Glasgow, having previously held a position as Senior Lecturer at the University of St. Andrews. He holds a BA in Economics from the University of Durham and an MSc in Economics from the University of Warwick. He received a PhD in Economics from the University of St. Andrews, having submitted a dissertation entitled: “Towards the Microfoundations of Finance and Growth“ He is a Research Affiliate/Associate at the Centre for Dynamic Macroeconomic Analysis.