policy frameworks will need to grapple with long into the future. the future of inflation so, how did we arrive where we are today? why is low inflation the current challenge, and why will that likely persist? 1 / 4 bis central bankers'speeches to answer these questions, we need to look at r - star, or the longer - run neutral rate of interest. one estimate of r - star in the united states, from a model developed by holston, laubach, and myself, is around half a percent in the united states. that ’ s actually now lower than at any time before the great recession. 3 we ’ ve seen similar declines in r - star in other advanced economies, including in japan and the euro area. in fact, the gdp - weighted average of estimates of r - star for canada, the euro area, 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. 4 these very low neutral rates are largely a result of global, longer - term structural factors. they ’ re driven by demographic changes, slow productivity growth, and demand for safe assets — all of which are unlikely to reverse any time soon. 5 one key takeaway from these global trends is that interest rates and inflation are going to stay lower than we ’ ve come to expect in the past. 6 this means that monetary policy will likely be more frequently constrained by the lower bound, or lb for short, creating a set of challenges for policymakers. in particular, life near the lb means central banks have much less room to maneuver using adjustments in short - term interest rates when faced with a downturn. the fundamentals of inflation targeting given that inflation targeting was designed in a world where inflation was undesirably high, does it still work for a world with the opposite problem? as i peer into the future, the question is not so much what is wrong with inflation targeting, but rather what we need to preserve and, in fact, strengthen it. any evolution of the current framework should involve doubling down on fundamental principles that have proven to be successful. what do i mean by that? there are three fundamental elements of inflation targeting that will be crucial as central banks work to prevent inflation from drifting too low : well - anchored inflation expectations, accountability, and transparency. inflation expectations, accountability, and transparency the most critical element is anchoring inflation expectations at the right level. for those of you

term for a repo is overnight, but the term can be for a longer period, such as one - month as well ). the difference in the purchase and sale prices constitutes a rate of interest paid by the institution that is borrowing the money ( or selling the security ). the advantage of the sale and resale arrangement is that, in the event that the borrower does not return the money it owes, the party that purchased the security can keep it, avoiding the costs, delays, and uncertainty associated with making its claim in bankruptcy court ; these advantages are confined to certain types of securities and has been allowed by supporting legislation. repos are just one such way that a private intermediary can provide a high degree of safety to its lenders, and others include asset - backed commercial paper, money market mutual fund shares, and auction - rate securities. however these private money - like assets are created, bis central bankers ’ speeches those that succeed in providing that elusive money - likeness confer significant benefits on their creators. a now widely confirmed finding regarding the issuance of money - like assets is that they can be issued at lower interest rates than other types of debt, saving the issuer from greater interest expense. that result comes in two steps. first, a number of studies show that short - term treasury bills ( which are a publicly provided type of money - like asset ) enjoy a “ liquidity premium, ” especially when the supply of treasury bills is relatively low. 9 short - term treasury bills can provide various money - like services for larger institutions because they are so safe. deposit insurance is limited ( currently it is limited to deposits of $ 250, 000 ) so large institutions that want to hold funds safely for short periods cannot find that safety directly with bank deposits. instead, shortterm treasury bills can provide a convenient way for large institutions to hold wealth in a safe form. because the treasury bills are short - term, their prices don ’ t experience much variation, and they are easily transferred and used as collateral. hence, they provide those features of money i mentioned earlier, namely a good store of value and a means of exchange. a second finding from these studies is that when the u. s. treasury issues relatively smaller amounts of treasury bills, the private - sector issuance of money - like assets increases, taking advantage of the liquidity premium that large institutions are willing to pay for their safety and convenience. so when the government funds itself with relatively more long - term