of advanced economies. these are the “ the facts ” that have changed. today i ’ m going to discuss them in more detail, and explore our options for dealing with the challenges they present. “ the facts ” shifts in demographics and productivity growth have fundamentally altered the economic environment in which we operate. 1 / 3 bis central bankers'speeches starting with demographics, two changes have taken place : people are generally living longer, and population growth is slowing. dwindling birth rates are bringing population growth to a standstill. in oecd countries, population growth averaged over 1 percent back in the 1950s and 1960s, but it is now running at half a percent per year, and is expected to gradually fall before dipping into negative figures by 2070. 1 slowing birth rates mean fewer consumers and fewer workers. people planning on longer retirements will tend to save more. and while this is undoubtedly good news in many respects, an abundance in the supply of savings also has a big effect on the global economic picture. when it comes to productivity, there has also been a stark step - down in growth. rapid changes in the kinds of technology we use in our daily lives — robotic vacuum cleaners, self - driving cars, and facial recognition technology in our phones — may make this seem counterintuitive or plain wrong. 2 but the data are clear. in oecd economies, growth in labor productivity — the amount produced per worker hour — has averaged a little over 1 percent per year since 2005, about half the pace seen over the prior decade. falling r - star so what does all this mean for the future? two things : first, slower population and productivity growth translate directly into slower trend economic growth. second, an abundance of savings, and a decline in demand for savings resulting from slower trend growth, together lead to lower interest rates. all of these factors combined have contributed to dramatic declines in the longer - term neutral rate of interest, or rstar. while a central bank like the fed sets short - term interest rates, r - star is a result of longer - term economic factors. it ’ s the rate expected to prevail when interest rates are neither giving the economy a boost, nor slowing it down. that ’ s why it ’ s called the “ neutral ” rate. the evidence of a sizable decline in r - star across economies is compelling. the weighted average of estimates for five major economic areas — canada, the euro area, japan, the united kingdom, and

philipp hildebrand : the swiss national bank ’ s view of international financial markets against the background of trends in the united states introductory remarks by philipp hildebrand, member of the governing board of the swiss national bank, at the end - of - year media news conference, zurich, 12 december 2003. * * * the past year was a turbulent one for the international financial markets, which were essentially influenced by trends in the us. during the first half of 2003, market developments were shaped by economic and deflation fears as well as by the war in iraq. in this environment, equity markets reached an annual low in march. in june, bond market yields fell to their lowest level. the second half of the year saw an economic recovery in the us, which is now spreading to other economic regions as well. capital markets long - term yields on swiss paper rose by approximately 60 basis points from their low in june to roughly 2. 7 %, approximately tracking yields in the euro area. in both cases, yields followed the us market very closely, albeit with modest fluctuations ( see graph 1 ). under the present economic conditions, the interest rate environment in switzerland is still viewed as attractive by consumers. the high level of new fixed - rate mortgages is an indication of this sentiment. the higher swiss yields reflect the improved economic outlook and not inflation expectations, which are modest given that there is still pronounced underutilisation of capacities. in contrast to capital market yields, money market yields were decidedly stable. the three - month libor remained almost constant at 0. 25 %. the global trend in capital market yields was chiefly determined by long - term yields in the us, which themselves were shaped by the recovery of the us economy. in the early summer, deflation fears had dragged the yield on ten - year us government bonds down to 3. 1 % - a level last reached at the end of the 1950s. in july and august, however, positive economic data pushed the yield right up to 4. 6 %. convexity hedging was one of the factors contributing to the unusual scale of the turnaround. as interest rates fell in the early summer, the refinancing of existing mortgages - which is possible in the us at any time - had triggered extensive buying of government bonds. us investors holding substantial mortgage portfolios had to make these purchases in order to keep the residual maturities of their portfolios constant. when interest rates rose, therefore, the correction was similarly swift