This is, of course, partly due to the central banks conducting a monetary policy that has succeeded in bringing down the average level of inflation from the high levels of the 1980s, which has been good. But it is also due to a global development towards lower real interest rates (see Figure 3), something that most say has not had anything to do with monetary policy, but instead is explained by real economic factors. 6 Holston, Laubach and Williams (2017) have carried out empirical research into how the ‘equilibrium real interest rate’ has developed in some leading economies, and they find a clear downturn after the financial crisis 2008-2009. Three of the several attempts to explain why real interest rates are now much lower than before are particularly worth mentioning. The first explanation is based on fundamental economic theory, according to which the real interest rate, at least in a closed economy, will be in proportion to growth in the economy, and the latter has slowed down in recent years. The second concerns the ‘global savings glut’, that is that (primarily) the major economies in Asia and the Middle East have generated large trade surpluses and thereby increased demand for savings, which tended to push down interest rates as the supply of safe assets is limited. The third explanation highlights demographic developments. The idea is that an ageing population needs to save for its pension, which once again leads to an increased tendency to save, which in turn pushes down the real interest rate.
I will take a longer perspective and discuss which tools the Riksbank may need to use, especially if the low interest rate scenario that has characterised the past 10 years becomes even more prolonged. The fact that monetary policy measures affect a central bank’s balance sheet has become increasingly common in large parts of the world. This development has been driven by the very low interest rates and the need to make monetary policy even more expansionary. Essentially, it is nothing new – if we go back in time, there are many examples of central banks that have used variation in their asset portfolios as a means of conducting monetary policy. The monetary policy toolbox also needs to take into account changes in the financial system; for instance, we in 1 [25] ---------------------------*This speech grew out of many long discussions held over the spring of 2020. The opinions expressed are my own. At the same time, I would like to thank David Vestin for his help in writing this speech and Petra Frid for her help with the diagrams. I would also like to thank Mattias Erlandsson, Jesper Hansson, Pernilla Meyersson, Ulf Söderström, Anders Vredin, Frida Fallan, Charlotta Edler, Ann-Leena Mikiver, Cecilia Roos-Isaksson and Marianne Sterner for their valuable comments on the speech and Elizabeth Nilsson, Calum McDonald and Gary Watson for their assistance translating it into English. Sweden have, in recent years, seen a development towards a higher share of market financing for Swedish companies.