In this time perspective, it is structural factors, such as demographics and long-term growth rates, that affect developments. One striking feature over recent decades is the downward trend in real interest rates around the world. Various explanations have been put forward for this, including demographic trends. 3 One theory that has attracted major attention is that the decline is a sign of secular stagnation, where different factors have driven up saving but dampened the propensity to invest. This has led to a chronic A more detailed description of the decline in global real interest rates and feasible explanations can be found in my speech at the Swedish Economics Association in 2017. 3  4 [13]  condition of “excessively low” demand in the economy, which has contributed to a lasting decline in real interest rates. Others think that it is not necessarily a question of secular stagnation, but that the situation can, for example, be better described as a deep recession following excessively high debt accumulation in many countries. An environment with a lower average repo rate The major question is what we can expect going forward. For a small, open economy like Sweden's, the interest rate on a global level is important as it affects domestic rates. With free movement of capital, it is difficult to have real interest rates that deviate a great deal from the global level in the long run, even if differences in demographic trends or long-term productivity growth can naturally play a part.
This may be due to an interest rate adjustment affecting their disposable income to a greater extent, as I just described. But it may also be due to highly indebted households reacting more to a given change in income than other households. You would expect this to be the case if households with high debt do not have the same opportunity as others to maintain their consumption by borrowing more. 5 See Sveriges Riksbank (2011), The Riksbank’s inquiry into risks on the Swedish housing market, and Hansen, S.  (2013), Explanations of the development of household indebtedness since the mid-1990s, Memorandum 1. Finansinspektionen. 6 See the article “How are households affected by rising interest rates?” in the December 2017 Monetary Policy Report, and Gustafsson, P. et al (2017), How are household cashflows and consumption affected by higher interest rates? Staff memo, Sveriges Riksbank. 7 See, for instance, Flodén, M. et al (2017), “Household Debt and Monetary Policy: Revealing the Cash-Flow Channel”. Sveriges Riksbank Working Paper Series 342. Sveriges Riksbank. 6 [13]  Greater interest-rate sensitivity creates uncertainty about the impact of monetary policy How total consumption will be affected when interest rates are gradually raised towards more normal levels is difficult to know. Interest expenditure will increase, and for some households by a relatively large extent. But the total effect will also depend on what happens in the economy otherwise as regards income from employment, housing prices, expectations, etc.