Second, over the past 25 years, we’ve seen a gradual decline in interest rates, including long-term bond yields and, most importantly, estimates of the neutral interest rate (Chart 5). 18 This reduces the scope of central banks to adjust their policy rate.
The monetary policy challenges of emerging economies are clearly quite distinct from those of advanced economics. But we tend to forget this. During the crisis, for example, there was quite a bit of pressure on us to do everything that advanced economy central banks were doing notwithstanding the fact that our situation was different in many respects.