In other words, the financial sector as a time-transforming sector is especially sensitive to the movement of real rates and to discrepancies between the actual real rate and the natural rate. To make all this even more complicated, try to imagine that the equilibrium or natural real rate of interest is not constant, but is itself moving in one direction. Then, as a central banker, you have to go down even more than you thought conceivable. This is exactly what we believe has been happening in the developed world for quite some time now (Chart 2). Here are some famous estimates made by John Williams at the San Francisco Fed, but you can find similar estimates elsewhere. Chart 2: Real equilibrium rates in the developed world have been falling steadily (Holston et al., 2016)  Why is that? Nobody knows for sure. But I tend to explain it using a famous quote from the French poet Paul Valéry – “The future is not what it used to be”. Probably due to factors such as demography, we are tending to look differently at the future. We have a different “discount factor”, if you will, which is leading us on average to prefer future consumption to current consumption (on average, of course, not individually). This basically changes everything for monetary policy, which is a policy based on the relationship between real interest rates and demand.
Most of all, they are stoking fears of a fall in the purchasing power of money, paradoxically at a time when inflation (the key measure of the purchasing power) in developed countries is lower on average than it has been for years! Put simply, we have been warning about the risk of flooding for so long that we are now unable to explain that drought can be just as big a problem and that at times of drought you have to water the garden, not keep draining it dry. If the hosepipes are blocked, moreover, you have to use other means to supply the plants with water. If we do not succeed here, we central bankers will have great difficulty being credible in the future. 4/5  BIS central bankers' speeches  Literature: Holston, K., Laubach, T., & Williams, John C. (2016): “Measuring the natural rate of interest: International trends and determinants,” Working Paper Series 2016–11, Federal Reserve Bank of San Francisco. 5/5  BIS central bankers' speeches