the cyclical position by lowering interest rates and also by buying large quantities of government and long - term securities ( graph 11 ). before the financial crisis, the central banks held only around 5 per cent of government securities on issue. today, they hold nearly 30 per cent. in japan, the bank of japan holds almost 50 per cent of government securities on issue, with these holdings equivalent to 80 per cent of japanese gdp. https : / / www. rba. gov. au / speeches / 2019 / sp - gov - 2019 - 10 - 29. html 14 / 18 10 / 30 / 2019 some echoes of melville | speeches | rba graph 11 another significant purchaser of government securities over recent times has been pension funds, particularly in europe. as prudential regulation has been strengthened, the funds have purchased additional long - dated assets to maturity match their long - dated pension liabilities. one way of seeing the effect of these various purchases is the term premium ( graph 12 ). normally, when an investor purchases a 10 - year security, a risk premium is earned over and above the return that is expected from rolling a short - term investment for 10 years. this premium, which historically has averaged around 1½ per cent, is now negative at around minus 1 per cent. this is directly related to purchases of government securities by central banks and others. so this is part of the story too. https : / / www. rba. gov. au / speeches / 2019 / sp - gov - 2019 - 10 - 29. html 15 / 18 10 / 30 / 2019 some echoes of melville | speeches | rba graph 12 taking into account all these factors, the key to a return to more normal interest rates globally is to improve the investment climate. while melville turned out to be wrong about zero interest rates, he was right in another sense. at low interest rates, many investments that didn't make sense at higher interest rates should now make sense. this is especially so for investments with long - term payoffs, because future returns no longer need to be discounted as highly. this means that low interest rates give us the opportunity to lengthen our horizons and think about projects with really long - term payoffs. there are two central elements in improving the investment climate. the first is the reduction in some of the geopolitical and other concerns that have led to higher risk premiums being required. the second is structural measures that give people greater confidence about future economic growth,

of this talk. macfarlane ij ( 2002 ), ‘ sir leslie melville : his contribution to central banking in australia ’, inaugural sir leslie melville lecture, canberra, 22 march. schedvin cb ( 1992 ), the reserve bank is also responsible for issuing of banknotes, operates the core of australia's payments system, is the banker to the australian government and has regulatory responsibilities in the payments system. melville lg ( 1936 ), ‘ statement ’ in in reserve : central banking in australia, 1945 – 75, allen & unwin, sydney, p 63. royal commission to inquire into the monetary and banking systems at present in operation in australia, minutes of evidence, vol. 2, commonwealth government printer, canberra, p 1117. cornish s ( 2002 ), ‘ leslie galfreid melville 1902 – 2002 ’, 478 at 473. melville lg ( 1938 ), ‘ the theory of interest – i ’, economic record, vol. 78, no. 243, december, pp 471 – economic record, june, pp 1 – 13. reddaway wb and ri downing ( 1939 ), ‘ zero rates of interest ’, economic record, june, pp 94 – 97. the estimates for potential growth are from : holston, laubach, and williams ( 2017 ), ‘ measuring the natural rate of interest : international trends and determinants ’, journal of international economics, 108, supplement 1 ( may ), s39 – s75, updated at < https : / / www. newyorkfed. org / research / policy / rstar > ; imf world economic outlook ; oecd economic outlook ; and national source estimates by the european commission, bank of canada, bank of japan, the us congressional budget office and uk office of budget responsibility. https : / / www. rba. gov. au / speeches / 2019 / sp - gov - 2019 - 10 - 29. html 17 / 18 10 / 30 / 2019 some echoes of melville | speeches | rba the paper by oscar jorda and alan taylor at this year's jackson hole symposium provides one way of decomposing this structural and cyclical response. see jorda and taylor ( 2019 ), ‘ riders on the storm ’, federal reserve bank of kansas city economic policy symposium, jackson hole, wyoming, 22 - 24 august. available at : < https : / / www. kansascityfed. org / publications / research /