, and that things will likely stay that way until the next scientific or technological revolution. 4 r - star descends these global shifts in demographics and productivity have two important implications for the future of our economies and for monetary policy. first, slower population and productivity growth translate directly into slower trend economic growth. second, these trends have contributed to dramatic declines in the longer - term normal or “ neutral ” real rate of interest, or r - star. slower trend growth reduces the demand for investment, while longer life expectancy tends to increase household saving. 5 this combination of lower demand for and higher supply of savings, along with other factors, has pushed down r - star. with open capital markets, these global changes in supply and demand affect r - star globally. the evidence of a sizable decline in r - star across economies is compelling. the weighted average of estimates for five major economic areas — canada, the euro area, japan, the united kingdom, and the united states — has declined to half a percent ( figure 8 ). 6 that ’ s 2 percentage points below the average natural rate that prevailed in the two decades before the financial crisis. a striking aspect of these estimates is that they show no signs of moving back to previously normal levels, even though economies have recovered from the crisis. given the demographic waves and sustained productivity growth slowdown around the world, i see no reason to expect r - star to revert to higher levels in the foreseeable future. the global decline in r - star will continue to pose significant challenges for monetary policy. given the limited policy space for interest rate cuts in future downturns, recoveries will be slow and inflation below target. the limitation in the ability of central banks to offset downturns results in an adverse feedback loop, whereby expectations of low future inflation drag down current inflation and further reduce available policy space. 7 2 / 4 bis central bankers'speeches new facts, new approaches policymakers around the globe need to prepare for the challenges of navigating the new realities of slow global growth and low r - star. this necessitates new thinking and approaches to monetary, fiscal, and other economic policies. starting with monetary policy, central banks should revisit and reassess their policy frameworks, strategies, and toolkits, to maximize efficacy in a low r - star world. the bank of canada already regularly does this, and the federal reserve is currently undergoing a review of its framework and strategy. 8 absent such changes,

central banks will be severely challenged to achieve stable economies and well - anchored inflation expectations. outside of monetary policy, there are a number of avenues by which fiscal authorities can enhance the resilience of economies to negative shocks. one is to strengthen the “ automatic stabilizers ” that provide a boost to the economy during a downturn. a second is to align debt management decisions more with monetary policy. for example, during a downturn, the fiscal authority could choose to shorten the duration of debt issuance to reinforce the effects of central bank quantitative easing. third, regulatory and supervisory policies that support the resilience of the financial system can limit the economic effects of negative shocks. finally, fiscal and other economic policies can attack directly the sources of slow growth and low r - star. this includes raising public and private investment in human and physical capital, infrastructure, science and technology, and policies aimed at removing barriers to participation in the labor force and the economy more broadly. conclusion the facts have changed, and so it is time our change our minds also. it is often said that change is hard. but, experience teaches us that it is better to prepare for the future than wait too long. ultimately, failure to prepare often means preparation for failure. 1 this is not true for all population groups. see anne case and angus deaton, mortality and morbidity in the 21st century, brookings papers on economic activity, spring 2017, in which they document declining life expectancy for middle - aged, less - educated non - hispanic whites in the united states since the year 2000. 2 united nations, world populations prospects : key findings and advance tables, 2015 revision. 3 antonin bergeaud, gilbert cette, and remy lecat, productivity trends in advanced countries between 1890 and 2012, review of income and wealth, volume 62, issue 3, pp. 420 – 44 ( september 2016 ). 4 robert j. gordon, the rise and fall of american growth : the u. s. standard of living since the civil war, princeton university press, princeton, new jersey, 2016. 5 carlos carvalho, andrea ferrero, and fernanda nechio. demographics and real interest rates : inspecting the mechanism, european economic review, volume 88, pp. 208 – 26, 2016 ; etienne gagnon, benjamin k. johannsen, and david lopez - salido. understanding the new normal : the role of demographics. finance and economics discussion series, board of governors of the