The era of globalization has drastically altered the concept of ‘trade,’ making even the most powerful economies rely on other economies for industrial development. Due to this trend, the economic situation in one country has a cascading effect on other economies and the interest rates applicable in those regions. For example, most economies across the globe depend on the OPEC (Organization of Petroleum-Exporting Countries) nations for oil supplies. Hence, when the savings rate in the OPEC region fell drastically in the early 1980s, the savings rate in the non-OPEC countries also declined sharply.
With OECD (Organization for Economic Cooperation and Development) accounting for about three-quarters of the world’s investment, economic soundness in these nations impact the interest rate trends throughout the world.
In the 1960s, the real interest rates in the OECD nations were between 0.8% and 4.5%, while those in Ireland and Iceland were negative. The rates worsened in 1970s, when real interest rates fell and slipped into negative across most of the OECD countries due to rising inflation. In the 1980s, the situation improved considerably, with real interest rates ranging between 4% and 6% in several OECD nations. The real interest rates continued to strengthen over the next decade and in early 2000, since the economy in this region continued to inflate.