Why have interest rates fallen far below the return on capital?

• We propose a model for the trends of risk-free rate and return on capital. Only risk explains decreasing stable The increase in risk-premium since 1980 comes from an aversion. Interest rates have been falling mid-1980s while capital has not. In calibrated OLG with recursive preferences encompassing many “usual suspects” cited debate secular stagnation, we find that lower trend growth accounts US euro area real rates. premia reflects two sets forces. Bonds become better hedges stocks, notably area, aversion increased. our model, changes labor share, longevity inequality had negligible effects interest