before the great recession. 2 we ’ ve seen similar declines in r - star in other advanced economies, including in japan and the euro area. as shown in figure 1, the weighted average of estimates of r - star for canada, the euro area, japan, the united kingdom, and the united states is now also half a percent, nearly 2 percentage points below where it stood at the turn of this century. these very low neutral rates are a result of long - term structural factors slowing growth. they ’ re driven by demographic changes and slow productivity growth, which are unlikely to reverse any time soon. low r - star implies that many central banks will be grappling with the challenges of life near the 1 / 4 bis central bankers'speeches zlb, which is why it ’ s so critical to consider how the zlb alters strategies related to monetary policy. monetary policy near the zlb and that ’ s exactly the question we looked at around 20 years ago. in a paper and subsequent fomc briefing in january 2002, my colleague dave reifschneider and i evaluated the effects of the zlb on the macro economy and examined alternative monetary policy strategies to mitigate the effects of the zlb. 3 this work highlighted a number of conclusions based on model simulations. 4 in particular, monetary policy can mitigate the effects of the zlb in several ways : the first : don ’ t keep your powder dry — that is, move more quickly to add monetary stimulus than you otherwise might. when the zlb is nowhere in view, one can afford to move slowly and take a “ wait and see ” approach to gain additional clarity about potentially adverse economic developments. but not when interest rates are in the vicinity of the zlb. in that case, you want to do the opposite, and vaccinate against further ills. when you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress. this brings me to my second conclusion, which is to keep interest rates lower for longer. the expectation of lower interest rates in the future lowers yields on bonds and thereby fosters more favorable financial conditions overall. this will allow the stimulus to pick up steam, support economic growth over the medium term, and allow inflation to rise. these first two conclusions featured in my paper with dave reifschneider from 2000. in that paper, these ideas were described as modifications of an otherwise standard taylor rule for monetary

john c williams : living life near the zlb remarks by mr john c williams, president and chief executive officer of the federal reserve bank of new york, at the 2019 annual meeting of the central bank research association ( cebra ), new york city, 18 july 2019. * * * as prepared for delivery accompanying slides of the speech. my wife is a professor of nursing, and she says one of the best things you can do for your children is to get them vaccinated. it ’ s better to deal with the short - term pain of a shot than to take the risk that they ’ ll contract a disease later on. i think about monetary policy near the zero lower bound — or zlb for short — in much the same way. it ’ s better to take preventative measures than to wait for disaster to unfold. today i ’ m going to talk about three things : first, the heightened relevance of the zlb for monetary policy ; second, the strategies designed to mitigate the effects of the zlb in an economic downturn ; and finally, why these strategies are so important for achieving our monetary policy goals. i ’ ve already referred to monetary policy several times. so, before i go any further, i need to give the standard fed disclaimer that the views i express today are mine alone and do not necessarily reflect those of the federal open market committee or others in the federal reserve system. the global economic context over the past quarter century, a great deal of research has gone into understanding the causes and consequences of the zero lower bound. 1 the achievement of low inflation in the united states — which, all else equal, implied lower interest rates — coupled with japan ’ s long period of deflation and near - zero interest rates, reignited concern about the zlb back in the 1990s. and the experience of the global financial crisis and its aftermath — with many advanced economies facing, or in some cases, crossing the zero lower bound — has moved this from a mostly theoretical exercise to a very practical one. an added impetus to this research has been the growing evidence that the neutral rate of interest rate has fallen significantly. i, working with various coauthors, have devoted a significant chunk of my academic career to studying r - star, or the long - run neutral rate of interest, and its implications for monetary policy. our current estimates of r - star in the united states are around half a percent. that ’ s actually now lower than at any time