system
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human
What caused the neutral rate of interest to fall since the '80s

Hello


The neutral rate of interest consistent with full employment seems to have fallen significantly over time since the 1980's. I was wondering what the main factors for this change were.
gpt
There is a lot of debate on this topic, and there is no one answer. The two (not mutually exclusive) big answers are "the global savings glut" and "secular stagnation."

The global savings glut theory - most associated with Ben Bernanke - says that there is a lot of money saved in the global economy, which is making that money less valuable to investors. East Asian economies who wanted to build up reserves after the Asian currency crisis in the 90s are the most commonly cited source of those new savings. 

The secular stagnation theory - most associated with Larry Summers - says that wealthy countries are saving too much and have too few wortwhile investments, which makes money for those investments less valuable Productivity growth is low by historical standards, meaning there isn't as much worth investing in. Populations in the west are also growing older, and old people have a lot of savings that they try to keep in the safest possible place (like bonds). Income inequality could also play a role since well-off people save more of their income than working class people.