H OW LOW can interest rates go? It is a question that worries central bankers everywhere. Since the global financial crisis of 2007-08 rates have been pushed down to unprecedented levels in order to prop up growth. With central banks’ interest rates near or below zero across much of the world, room for further cuts to combat the next downturn is limited. If America’s Federal Reserve can manage to keep nominal rates at 2% or higher over the long term, it should be able to cope with the help of policies such as quantitative easing, mused Ben Bernanke, a former Fed chairman, at the conference of the American Economic Association ( AEA ) on January 4th. Alas, a working paper* published by the Bank of England the previous day suggests that rates could have further to fall.

Most research on long-term trends in interest rates relies on data from the past century. But Paul Schmelzing of the Yale School of Management has gathered information on real interest rates (that is, corrected for inflation) covering 78% of advanced-economy GDP going back to the early 14th century, when capitalism and free markets began to emerge. He found that real rates have declined by 0.006-0.016 percentage points a year since the late Middle Ages (see chart). That may not seem much, but it means real interest rates have fallen from an average of around 10% in the 15th century to just 0.4% in 2018.