Today I want to delve deeply into the history of short term real interest rates and equity prices in the UK. My main motivation for doing so is to try and gain some insight into what drives the equilibrium level of real interest rates. This is key in understanding where interest rates might end up in the coming years and why, and will help us gauge to what extent current levels of interest rates are unusual or even “unprecedented”. Adding a second asset price, equities, to the analysis gives us an important extra dimension along which to verify our story: a simultaneous explanation of both real rates and equities is ... (full story)