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.

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.