the real interest rate consistent with inflation stability and output at its natural level) is now at historically low, possibly negative, levels. Some possible explanatory factors are of a transitory nature (such as the still-ongoing deleveraging processes), while others are more structural ( i.e. low productivity growth and demographic factors). We have to deepen our analysis further in order to have a full grasp of this “new normal” reality. Implications for monetary policy:  New conventional? The question that arises is whether the “new normal” should lead to a “new conventional” for monetary policy. Indeed, inflation and real interest rates are likely to persist at a low level in the future, and therefore nominal interest rates will also be lower and hence closer to their effective lower bound, limiting their effectiveness as a monetary policy instrument, which will possibly lead to balance sheet management as a permanent policy. There are still no conclusive debates about balance sheet management, including on its marginal effectiveness, the optimal size of the balance sheet and the repercussions it could involve in terms of financial stability. Again, in this area, we need further analysis. 4/6   Once the conditions for it are met, the exit strategy from the accommodative policies will require gradualism and predictability. As the recovery gathers speed, and as long as this translates into a sustained adjustment in inflation towards its objective, the need for monetary policy support will tend to diminish.
Financial markets experienced a sudden stop in the fall of 2008. The decline in global banking activity has been particularly pronounced in cross-border positions vis-à-vis advanced economies, which declined by 20% between 2008 and 2017, whereas cross-border lending to emerging market economies increased by 44% during the same period (primarily driven by very strong lending to China).  Global Financial Crisis. During the years of expansion of the so-called Great Moderation, from the mid-80s until the crisis, the global economy was progressively accumulating high levels of debt and leverage, assisted by easy financing conditions and the underpricing of risk. This led to increased vulnerability of the global economy and to the accumulation of bubbles, mainly in the financial and real estate sectors in advanced economies. What took us all by surprise was the intense depth and global nature of the crisis that exploded in 2008. In a context of high integration and complex interconnections between financial institutions, instability spread rapidly across markets and economies, leading to the most serious global financial crisis of the last 80 years. In the European Union, the crisis was exacerbated by a double-dip recession, which hindered our recovery period and revealed as well the weakness of the institutional framework of the euro area.  Technological change. In the 21st century we have seen an explosion of technological changes that are reshaping the global economy: internet, e-commerce, mobile phones, artificial intelligence and big data.