weak investment demand. 7 / 11 bis central bankers'speeches does the marked narrowing of the u. s. current account deficit post - crisis suggest that the united states has been the primary source of downward pressure on global interest rates over the past decade? certainly, if the united states had maintained its previous deficit, interest rates would likely be higher around the world. however, the financial crisis revealed that the u. s. capacity to absorb global savings at the pace observed prior to the crisis was unsustainable. 16 rather, an alternative explanation would be that the sharp decline in global interest rates post - crisis reflects factors that were likely well in train before the financial crisis. the downward trend in interest rates would have been more pronounced earlier in the decade had not elevated, and ultimately unsustainable, borrowing in the united states slowed the decline in interest rates in the years immediately preceding the crisis. this narrative is consistent with empirical evidence that suggests that the slowdowns in global productivity growth and labor force growth, both key factors in the slowing pace of global growth and the downward pressure on interest rates, predate the global financial crisis. 17 it is notable in figure 6 that the euro area has also seen a sizable increase in its current account position post - crisis, suggesting that developments in europe have also played a role in pushing down interest rates. the increase in the euro - area current account in part reflects sharp reversals in the current account deficits of greece, portugal, spain, and ireland — all countries that had witnessed large increases in their deficits during the global saving glut period prior to the crisis, in a pattern similar to that experienced by the united states. however, the euro - area increase also reflects increased surpluses in germany and the netherlands, countries that were already in considerable surplus during the pre - crisis period. what, if anything, can be done about low interest rates? given the potential risks around low interest rates i discussed earlier, including the impact on the effectiveness of monetary policy and financial stability concerns, what should policymakers do to address the problem? 8 / 11 bis central bankers'speeches monetary policy has a role to play. transparent and sound monetary policy can boost confidence in the stability of the growth outlook, an outcome that can in turn alleviate precautionary demand for savings and encourage investment, pushing up the equilibrium interest rate. however, as i have said before — and ben bernanke before me — " monetary policy is not a panacea

interest has declined about 150 basis points in the united states since the financial crisis and is currently about 50 basis points. we must remember, however, that r * is a function and not a constant, and its estimation is subject to a number of assumptions, the modification of which can lead to a wide range of estimates. 2 in an extension of this analysis, shown in figure 3, laubach, williams, and kathryn holston, also a federal reserve colleague, show that the decline in the natural rate of interest is a common feature across a number of foreign economies. 3 the fall in equilibrium interest rates was most pronounced at the time of the financial crisis, but rates have shown little tendency to increase during the long recovery from the crisis. 3 / 11 bis central bankers'speeches how should we think about the decline in equilibrium interest rates? an investment and savings framework there are many factors that could be holding down interest rates, some of which could fade over time, including the effects of quantitative easing in the united states and abroad and a heightened demand for safe assets affecting yields on advanced - economy government securities. i will focus on some of the more enduring factors that could potentially lower the equilibrium interest for some time. in attempting to explain why real interest rates have fallen, a useful starting point is to think of the natural interest rate as the price that equilibrates the economy ’ s supply of saving with the demand for investment in the long run, when the economy is at full employment. with this framework in mind, low interest rates reflect factors that increase saving, depress investment demand, or both. focusing initially on the united states, i will look at three interrelated factors that are likely contributing to low interest rates : slower trend economic growth, an aging population and demographic developments, and relatively weak investment. i will then discuss global developments and spillovers between countries. but first i would like to interject a quick word on why we as policymakers might be concerned about low interest rates. i highlight three main worries. first, as john maynard keynes discussed in the concluding chapters of the general theory of employment, interest and money, a low equilibrium interest rate increases the risks of falling into a liquidity trap, a situation where the nominal interest rate is stuck, by an effective lower bound, above the rate necessary to bring the economy back to potential. 4 relatedly, but more broadly, low equilibrium interest rates are a key pillar of the secular stagnation hypothesis, which larry summers has