model of the world economy that brings together several key structural factors that could account for the decline in global r *. [ 7 ] these are productivity growth, population growth, longevity, the relative price of capital, and government debt. the structural model generates a path for global r *, as well as a decomposition of the contribution of each of these factors. some key results of this exercise are laid out in table 1. this includes both the baseline model simulation, and a range of alternatives that vary some key underlying parameters and assumptions. it focuses on the period since 1985, given the attention it has received in much of the existing literature. the sample ends in 2015 due to the process used to extract the underlying trends in the structural factors and the timeliness of some of the data required for the simulation. given the focus on slow - moving structural drivers, omission of the most recent data is unlikely to have a material effect on the estimate of the trend real rate. and i will come on to consider the more recent period and the potential impact of the covid pandemic later in the speech. table 1 : changes in global r * from structural and empirical models structural model baseline range 1985 – 2015 - 1. 9 ( - 3. 3, - 1. 1 ) productivity growth - 0. 9 ( - 1. 2, - 0. 3 ) population growth - 0. 1 ( - 0. 5, - 0. 0 ) longevity - 1. 0 ( - 1. 8, - 0. 8 ) empirical model median 5 % – 95 % 1985 – 2015 - 1. 9 ( - 2. 4, - 1. 3 ) of which : note : for the structural model, the table reports the estimate of global r * in the baseline simulation, together with the minimum and maximum across the sensitivity tests. for the empirical model, the table reports the median estimates of global r * together with the 95 percent posterior intervals. source : cesa - bianchi et al. ( 2022 ). table 1 shows that, in the structural model, global r * falls markedly between 1985 and 2015. the total decline of 1. 9 percentage points is driven by the response to the five global trends mentioned earlier. [ 9 ] the baseline structural model simulation matches the median change over the same period from the statistical model in the earlier chart ( reported in the last row of the table ), though both are subject to a wide range of uncertainty. with respect to the main drivers

emergence of large uni - directional financial flows from emerging economies to the core of bis central bankers ’ speeches the global financial system. at the macro level, large domestic imbalances were externalised to the global economy. emerging surplus economies relied on an excessively export - led growth model. this necessitated artificially undervalued exchange rates which were pegged to the dollar by means of massive accumulation of reserves. on the flip side, deficit countries relied on large capital inflows to finance excess domestic consumption and provide the overleveraged financial system with liquidity. thus, imbalanced domestic growth in both deficit and surplus countries and distorted global trade and financial flows were symbiotically linked through fixed exchange rates, which constituted a major vulnerability of the system : the absence of a corrective mechanism that would prevent the collapse we ultimately witnessed. * * * let me stress right away that we are far from being safe of a repetition of the past unless we take our lessons seriously. it is true that during the crisis the “ ingredients ” of the recent wave of financial globalisation that i described before seemed to disappear. home bias increased sharply as risk aversion rose and global markets experienced an extraordinary retrenchment of capital flows. at the same time, global trade collapsed, oil prices fell sharply, and some emerging economies encountered substantial pressure on foreign reserves. however, this unwinding was largely cyclical and the structural forces at the micro and macro level are still in place. the resumption in global growth and trade, rebounding oil prices, the recovery of global equity markets and the impact of fiscal stimulus are increasingly being felt. at the same time, the sustainable rebalancing of demand and supply remains a key and unresolved issue in major advanced and emerging economies. this is all the more the case as some surplus economies continue to accumulate large excess reserves while maintaining fixed exchange rate regimes which – as i have argued – were at the core of many crises in the past, including the most recent one. projections by the imf actually show that we are currently already past the low point of external imbalances, both in terms of the us current account deficit and the surpluses of major emerging economies. foreign exchange reserves of emerging economies are currently already above their peak levels prior to mid - september 2008 when the turmoil erupted into a full - blown crisis. according to the imf, around half of all emerging economies hold reserves above any measures of optimality which