Is it time to start using a 2% discount rate?

Cohen (2024) argues that health economists should start using 2% discount rates for health economic models. Why is that? I summarize the article below. First, Cohen discusses two different methods for estimating discount rates. Ramsey equation. This approach consider 4 factors: pure time preference, catastrophic risk, wealth effect, and macroeconomic risk. The first 3 factors…

Interest rates are falling

…well, real interest at least. While in the years since the COVID-19 pandemic have seen nominal interest rates rising, in the long run real (i.e., inflation adjusted) interest rates are falling. A NBER working paper by Obstfeld (2023) provides compelling evidence of this trend. Current real interest rates are likely somewhere in the 1%-2% range.…