Through the looking glass

Lecture by Mr Claudio Borio, Head of the Monetary and Economic Department of the BIS, at the OMFIF City Lecture, London, 22 September 2017.

BIS speech  | 
22 September 2017

Why has inflation been so stubbornly subdued despite so little excess capacity? And why have real (inflation-adjusted) interest rates declined so much for so long? The lecture argues that these two seemingly independent developments are, in fact, intimately linked. Prevailing paradigms may underestimate how long-lasting the impact of real factors, such as globalisation and, increasingly, technology, may be on inflation; and, conversely, they may underestimate how long-lasting the impact of monetary policy may be on real interest rates. If these hypotheses are correct, they could have first-order implications for the future of monetary policy.