The Bank of Canada’s Senior Deputy Governor, Carolyn Wilkins, gave a speech last year in which she outlined why we should expect to see a lower real neutral interest rate globally. The reasons include slowing labour force growth and productivity growth in developed economies, suggesting a drop in demand for investment, and a very strong supply of savings from many emerging economies.
So we must start thinking about equilibrium interest rates from a lower starting point. Second, on top of these structural factors, we’ve seen central banks react to the financial crisis and subsequent Great Recession by aggressively lowering policy rates. Several central banks, including the Bank of Canada, also found themselves constrained by the effective lower bound on interest rates.