Chapter Sixteen - Secular stagnation and the age of ultra-low interest rates

Abstract

Under the guidance of monetary policy, interest rates have been on a declining trend for decades and reached all-time low in 2019, with a large proportion of securities having negative yields. While the COVID-19 pandemic reversed the negative yield trend on long-term rates, the economic environment that has produced ultra-low interest rates is still present. Rising income and wealth inequalities, slow jobless recoveries, low inflation, and a long-term trend toward a shrinking population in developed economies point toward the persistence of a low-growth, low-interest-rates economic environment. Unless economic policies are put in place to reverse these trends, central banks will have limited willingness and ability to raise their policy rates in any significant way and so other interest rates will tend to stay low for the upcoming decade or more.