…The stark divergence between safe and risky expected rates of return is suggestive of an increased shortage of safe assets”.42 The disconnect between low rates of government bonds and the real rates of return of capital invested by non‐financial firms, indicates that any concept of natural rate of interest cannot simply be a result of the marginal productivity of real capital as Wicksell and other neo‐classical economists believed.
On the other hand, the excess of demand for official safe assets pushed up their prices i.e. lowered their yields until they reached levels near the ZLB. When interest rates could no longer adjust down to establish market equilibrium, the adjustment variable became the output moving into a recession.