[Causes and Consequences of Low Interest Rates].

Abstract

The sustained low-interest rate environment raises several economic challenges. These challenges as well as the underlying causes are subject to an intense economic debate. This article, traces the scientific debate by laying out the theoretical and empirical arguments. As not only nominal, but also real rates have decreased in most developed economies over a long period of time, monetary policy is unlikely to be the major driver of the development. In contrast, theories that explain the decline in interest rates with structural changes in the demand and supply of capital are consistent with the empirical evidence and offer a more convincing explanation. Beyond an analysis of the roots of the decrease, we discuss potential economic consequences of persistently low interest rates. In particular, we discuss evidence of how the transmission channels of monetary policy, financial intermediaries, non-financial companies as well households are affected by the low-interest rate environment. Finally, we provide policy recommendations.