Persistent unusually low interest rates. Why? What consequences?

Presentation on the BIS Annual Report by Claudio Borio, Head of the Monetary and Economic Department, on the occasion of the Bank's Annual General Meeting, Basel, 28 June 2015.

The presentation develops a core theme of the Annual Report. It argues that persistent unusually low interest rates are not necessarily "equilibrium" or "natural rates", conducive to sustainable and balanced global expansion. The dominant analytical perspective defines equilibrium rates too narrowly in terms of the behaviour of inflation. As a result, it does not properly integrate financial instability and its large output costs, notably through the impact of resource misallocations on productivity growth. The broader perspective proposed in the Report casts new light on the long-term decline in real interest rates, helps us better understand possible risks for the global economy and calls for a role to be assigned to monetary policy alongside macroprudential policy in preserving financial stability.