[7]  While the factors that have reduced r* are beyond the control of the central bank, the fact that the level of r* is lower has significant implications for monetary policy: the short-term policy interest rate hits the zero bound more often and, when it does so, remains at the lower bound for a longer time.
A recent ECB staff paper shows that, in a scenario where r* falls from 2 percent to zero, the incidence of hitting the zero bound almost doubles. [8] Lower real rates reduce the available policy space to counter low inflation.