Indeed, oil displaced coal despite still vast untapped reserves of coal, and coal displaced wood without denuding our forest lands. Innovation is already altering the power source of motor vehicles, and much research is directed at reducing gasoline requirements. Moreover, new technologies to preserve existing conventional oil reserves will emerge in the years ahead.
But there is a downside, too: the low equilibrium level for nominal interest rates means that central banks have very little room to manoeuvre when there is a large negative shock, such as the one we encountered in 2008. Being constrained by the effective lower bound for interest rates has clearly prolonged the global economy’s adjustment.