a price that is below their expected rate of return on investment. over time, this creates a downward pull on interest rates. since the 1990s, long - term real yields have fallen by over 400 basis points in the us, over 500 basis points in japan and over 600 basis points in germany. we can get a sense of this dynamic if we compare the economy in the us in the 1990s with that today. in the 1990s, with inflation around 2 - 3 %, and potential growth thought to be around 3 - 4 %, nominal policy rates at 3 % were seen as highly accommodative. [ 34 ] now, with lower inflation and long - term growth expected to be 1. 5 - 2 %, nominal interest rates at that level would be seen as extremely tight and trigger a recession. but the size of the decline in real yields since the 1990s also reflects other secular factors that have arisen since then. these have depressed interest rates even relative to growth by encouraging people to save more and invest less. the most powerful is adverse demographics. in the euro area, the demographic transition is estimated to have reduced real interest rates by around one percentage point over recent decades. on current trends it can be expected to depress real rates by a further 0. 25 - 0. 5 percentage points by 2030. [ 35 ] other studies have pointed to the role of rising income inequality, where increasingly rich households save more of their permanent income ; [ 36 ] an excess of global saving especially in emerging markets ; [ 37 ] and a general increase in risk aversion, which is captured in a rising demand for safe assets. the upshot is that, across a range of estimates, the natural rate in the euro area has been trending down to very low levels. estimates for the us are slightly higher but display the same downward path. [ 39 ] this has important repercussions for monetary policy, namely in that any interest rate set by the central bank that is not in line with the trend of the natural rate would be contractionary. thus trying to raise rates too quickly would be self - defeating, since it would only lead to growth and inflation falling and rates having to be cut once more. in fact, if such a stance caused a longer slump and a rise in uncertainty about monetary policy, it could even lead to “ hysteresis effects ” in investment and risk sentiment. [ 40 ] that would in turn depress tfp growth further and cause the natural

) monetary prudence ; 3 ) external sustainability with exchange - rate flexibility and countercyclical policies ; and 4 ) better regulated and deeper financial systems. the current account surplus and a primary fiscal surplus has reduced indebtedness in virtually all countries in the region. latin america has been showing a current account surplus for three years in a row, which reached about 1. 3 % of gdp in 2005. fiscal solvency has become a public good highly and undoubtedly valued by our society. most importantly, fiscal discipline is not an asset for the left or right. it is just common sense. there is also increased price stability along with a greater social demand for restrained inflation. central banks in the region have been able to meet these demands by pursuing prudent monetary policies. this scenario together with higher private capital inflows has helped to develop countercyclical policies by means of foreign reserves accumulation. while, the decision regarding the level of foreign reserves that a country should hold is generally associated with the need for a certain amount of liquidity to meet external liabilities, i would like to stress the role that foreign reserve accumulation plays as an insurance and deterrence mechanism for emerging countries. i believe it is the responsibility of every country to develop its own set of countercyclical policies that would help weather limited access to financial markets without causing a significant impact on domestic variables. building a precautionary cushion of foreign reserves is particularly important for emerging markets in these benign times. also, there has recently been a shift in the focus of international financial rules. the old paradigm is in crisis, but no replacement has yet been found. the problems in distinguishing between financial turbulences that arise from temporary or permanent causes may lead to contagion effects ; an uncertain transition from bail - out to bail - in ; problems arising from moral hazard, are as present today as they have been in the past. therefore, in the absence of an international lender of last resort and with an incomplete international financial architecture, the accumulation of international reserves for prudential reasons has to be contemplated. in fact, today i believe that, there is no good substitute for sound liquidity policies developed domestically to deal with exposure to the potential risks i described earlier. and this is not a policy exclusive to argentina. following the macroeconomic and financial instability of the second half of the 1990s, the main emerging countries, especially those that have endured financial crises, have favored the accumulation of reserves as a mechanism to reduce the vulnerability