Low interest rates: a transatlantic phenomenon

Maria Demertzis and Nicola Vegi join Giuseppe Porcaro to talk
about their recent research on low interest rates, declining
productivity growth and how to tackle this.



In both Europe and the United States, interest rates have been
declining for more than fifteen years. For much of this period,
real interest rates have been negative and they are expected to
remain negative for at least another decade. The literature
associates this decline in interest rates with a similarly
protracted decline in productivity. But the decline in
productivity appears paradoxical given major technological
advances.



The structural factors behind the downward pressure on interest
rates imply that macroeconomic policy will have a reduced role in
managing aggregate demand. Monetary policy in the euro area will
be more about preventing financial fragmentation and less about
stimulating demand. Equally, fiscal policy will have more of a
supporting rather than stimulating role.



Tackling the structural decline in market dynamism and therefore
in real rates will require structural policies to reduce market
power globally and ensure the creation of capital markets in the
EU.