Real Interest Rate and Growth Rate: Theory and Empirical Evidence

17 Pages Posted: 29 Feb 2012

See all articles by Jean Marie Le Page

Jean Marie Le Page

Université Paris II - Panthéon-Assas

Date Written: October 1, 2011


This study presents an assessment of the links between the real interest rate and the growth rate. In the first part of the paper we recall the theoretical foundations of these links. In the second part, we compare empirical data with the predictions of the theory. The real interest rate should exceed the growth rate in the long run. This hierarchy has important consequences on the public finances. The Solow-Ramsey-Cass model fits better to the data than the endogenous growth theory. Furthermore, the Sixties and Seventies have been a time of transitory dynamics with real interest rates lower than the growth rates.

Keywords: real interest rate, growth rate, time preference rate, productivity of

JEL Classification: E22, E43, E44, O41

Suggested Citation

Le Page, Jean Marie, Real Interest Rate and Growth Rate: Theory and Empirical Evidence (October 1, 2011). Frontiers in Finance and Economics, Vol. 8, No. 2, pp.136-152, 2011, Available at SSRN:

Jean Marie Le Page (Contact Author)

Université Paris II - Panthéon-Assas ( email )

12 place du Pantheon
Paris cedex 06, 75231

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