Interest rates are at historic lows in advanced nations around the world and markets expect them to stay low for years. In his presidential address to the Royal Economic Society, published in the May 2016 issue of the Economic Journal, Professor Sir Charles Bean reviews the causes and some of the consequences of the recent decline in global real interest rates.
Causes include a higher propensity to save associated with a rise in the population share of the high-saving middle-aged; a weaker propensity to invest since the 2007/08 financial crisis; and portfolio shifts towards safer assets.
Consequences include an increased likelihood that policy rates are constrained by the zero lower bound, necessitating greater reliance on unconventional monetary policies; and an increased risk of financial instability as investors seek to generate higher yields.
A film of the full lecture is available here:
https://www.youtube.com/watch?v=XPRNh9NxQsU
Professor Bean''s summary of the related CEPR/ICMB Geneva Report on the World Economy – Low for Long? – is available here:
http://voxeu.org/article/causes-and-consequences-persistently-low-interest-rates
''Living with Low for Long'' by Charles Bean is published in the May 2016 issue of the Economic Journal. Charles Bean is a Professor of Economics at the London School of Economics. From 2000 to 2014, he served at the Bank of England as, successively, Executive Director and Chief Economist, and then Deputy Governor for Monetary Policy, in which capacity he was a member of the Monetary Policy and Financial Policy Committees. Before joining the Bank, he was a member of faculty at LSE and was Managing Editor of the Review of Economic Studies; he has also worked at HM Treasury. He was RES President from 2013 to 2015 and was knighted in 2014 for services to monetary policy and central banking. He holds a PhD from MIT.
