The decline in growth and interest rates in many advanced economies has spurred a debate on the drivers behind those developments. The workshop focused on the identification of those drivers, and issues of fundamental relevance for monetary policy, financial stability and regulation.
In his opening lecture, Thomas Laubach, Director of the Federal Reserve Board’s Division of Monetary Affairs, reviewed the literature and concluded that the natural interest rate has declined to historically low levels in all the main economies, but shows signs of recovery in the US.
The workshop included eight papers presented in three sessions. The first session aimed at identifying the drivers behind the decline in interest rates, exploring the impact of developments in real and financial variables and the role of the risk premium; the evidence suggests that the decline in interest rates will not be reversed any time soon. The second session examined the relationship between demographics, inflation and real interest rates. The third session explored how the interaction between the real and the financial sides of the economy may magnify the impact of shocks. As to the effectiveness of monetary policy in a low interest rate environment, the prevailing opinion was that the evidence does not suggest a decline in monetary policy effectiveness, but rather an increase in the headwinds set in motion by the global financial crisis.
