To contain these risks, the SNB took unprecedented measures, first increasing liquidity to historically unparalleled levels, then introducing a minimum exchange rate against the euro. 4  Estimates suggest that the first round of US quantitative easing has reduced yields on 10-year U.S. treasuries by 50 to 100 basis points, see e.g. Christensen and Rudebusch (2012) or Gagnon et al (2011). However, we are not yet in a position to undertake a final assessment of the broader macroeconomic effects of these programmes. BIS central bankers’ speeches  3  Summing up our investigation into the causes of low interest rates, the main message is that interest rates reflect the prevailing economic and financial circumstances and the reaction of monetary policy to these circumstances. The low levels we currently observe can be explained by a secular downward trend that began in the 1980s, a cyclical downturn due to the financial crisis, the correspondingly accommodative monetary policy and, in the case of Switzerland, additional downward pressure resulting from the safe-haven demand. But – and this brings me to my next point – such low interest rate levels are not without risk. Consequences of a long period of low interest rates An extended period of very accommodative monetary policy, even when fully justified as a reaction to prevailing economic circumstances, is not without risks and side-effects. Let me raise two issues: the risk to price stability, and the risk to financial stability. I will start with the former.

Such a scenario will allow central banks to progressively scale back their crisis measures and, eventually, lift policy rates off the zero lower bound. We are clearly not there yet, however. The global economy is still fragile and the level of uncertainty remains elevated. Markets understandably expect policy rates to remain low for several quarters in the future. While at a qualitative level the outlook is thus relatively clear, the road back to normality will probably be long and possibly bumpy. After all there is no precedent for the situation we have experienced and for the exceptional measures taken by monetary authorities. At the same time, as we have discussed, an extended period of low interest rates may entail significant risks for financial stability. These require the full attention of the authorities, who should be ready to use appropriate instruments, if needed, to keep these risks in check. 6  BIS central bankers’ speeches  References Adrian, T., Shin, H. (2009). Financial Intermediaries and Monetary Economics. Federal Reserve Bank of New York Staff Reports, No. 398. Bernanke, B. (2004). The Great Moderation. http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2004/20040220/default.htm Bernanke, B. (2007). Global imbalances – recent developments and prospects. http://www.federalreserve.gov/newsevents/speech/bernanke20070911a.htm Bloom, D., Canning, D., Sevilla, J. (2001). Economic Growth and the Demographic Transition. NBER Working Paper No 8685. Borio, C. (2012). The financial cycle and macroeconomics: What have we learnt? BIS Working Paper No 395. Borio, C., Zhu, H. (2012). Capital regulation, risk-taking and monetary policy: A missing link in the transmission mechanism? Journal of Financial Stability, vol. 8, pages 236–251.