ECB simulations show that our joint asset purchase programme (APP) and PEPP holdings can be expected to put sizeable downward pressure on interest rates across the maturity spectrum even in three to five years’ time (right-hand chart, Slide 8).3 Having these effects in mind, it may be less surprising that real rates on both sides of the Atlantic have so far resisted broad upward pressure despite firming expectations that the pace of net asset purchases globally will gradually be reduced in the near future.
However, the new system did not enjoy the same credibility as the earlier regime and, at the same time, failed to leave the monetary authorities sufficient room for manoeuvre. Culturally still under the influence of the gold standard, the monetary authorities were in any case little inclined to cooperate and tended to accumulate gold reserves, thereby exerting powerful deflationary pressure on the economy.