not only scales down the supply side but also places a negative impact on the demand side. this is because household consumption and corporate investment are held back once the households ’ income prospects and the firms ’ earnings forecasts are weakened. both the supply and demand sides lose momentum due to productivity declines, resulting in a persistent fall in the natural rate of interest. deleveraging in the aftermath of the bubble bursting and the financial crisis reinforces the fall of the natural rate of interest, since the private sector reduces expenditures rapidly and by a large amount. 20 as the policy rate reaches the zero lower bound and room for further unconventional – as well as conventional – monetary easing diminishes, it becomes even more difficult for central banks to stabilize the economy and price levels. in such a situation, the central bank needs to shape policy frameworks so as to contribute to growth potential and thus growth expectations, and hence raise the natural rate of interest. the situation i have described is no longer unique to japan and rather common in other advanced economies, and even for some emerging economies facing population ageing in the near future. i believe that the seemingly unconventional activist policy of the bank of japan in funding for financing economic growth may be relevant for these economies as well in the coming years. my interpretation of the funding for lending scheme in the united although it is not widely recognized, this good - advisor function is important in helping the entrepreneur grow. unfortunately, japanese financial institutions failed to act as good advisors in improving the performance of borrower firms ( fukao et al. 2005 ). see aghion ( 2012 ) for this classification. aghion et al. ( 2012 ) claim with both theory and empirical evidence that monetary policy influences aggregate productivity through its impact on r & d investment by firms. guerrieri and lorenzoni ( 2011 ) point out that an unanticipated tightening of borrowing constraints during a financial crisis leads to a fall in the natural rate of interest. first, borrowers facing financial constraints have to deleverage. second, even lenders not facing financial constraints have to increase precautionary savings once they become aware of the risk that their constraints may bind in the future. similarly, eggertson and krugman ( 2012 ) claim that the natural rate of interest declines and deflationary pressure becomes large during the deleveraging process, induced by a tightening in the financial constraints. bis central bankers ’ speeches kingdom is that it has similar schumpeterian effects

patrick honohan : the importance of sound information in assessing the health of the irish banking sector address by mr patrick honohan, governor of the central bank of ireland, to the chartered accountants ireland, dublin, 23 november 2010. * * * there is a letter in the archives of the world bank in washington dc on the letterhead of the shelbourne hotel, dublin, dated saturday, june 7, 1958. benjamin king writes back to headquarters on his mission to ireland. this was the first ever such mission sent by either of the bretton woods institutions ( the world bank and the international monetary fund ) since ireland had joined both of them in the previous year. king was in dublin at the invitation of the secretary of the department of finance, t. k. whitaker, who had asked the world bank to help by carrying out a review of the irish economy with a view to a possible borrowing programme for ireland from the bank. but king found that much analysis had already been carried out by the irish administration. indeed, he had been perusing a draft of the document that would change the course of irish policy towards its economic engagement with the rest of the world. “ i have asked whitaker ”, he writes, “ to send you by airmail his report “ economic development ”. it is over 200 pages and seems pretty good to me. ” and it ’ s not just a document of factual analysis, but addresses challenging policy issues. he notes that “ it is also quite tough ( in a velvet - glove sort of way ) with some old - established practices ”. with this document, king believes that ireland would be already “ halfway toward [ having ] a sensible program ”. ireland did not in fact borrow immediately from the world bank but eventually it borrowed a total of us $ 150 million between 1969 and 1975 for a variety of projects, ranging from power generation, to agriculture, to education. the last world bank loan to ireland, to support the then icc ( now bosi – alas closing at the end of this year ) in promoting regional development and employment, was approved in august 1975. the resonances from this 52 - year old letter are particularly sonorous this week, as an imf team scrutinizes another irish plan and maps out another international programme of borrowing by ireland ( with the additional support on this occasion of european institutions ). the 1958 economic policy shift launched a move towards increasing internationalization and – to use a word not yet in use back then