It also appears that in most countries the lower real interest rates are the main reason for the fall in nominal interest rates during this period. During the 1990s, when a number of central banks introduced inflation targets, lower inflation expectations also contributed to the fall in nominal interest rates. Secular stagnation or debt adjustment? An international discussion has been going on for some years now with regard to the causes of the fall in the global real interest rate. In simpler terms, one can say that two main explanations have been put forward in the debate.3 According to one explanation, the fall is primarily due to factors determining the long-term trends in investment and savings, such as demographic developments. This is partly connected to the discussion on secular stagnation initiated by Lawrence Summers, amongst others.4 In this view, long-term trends in saving and investment have pulled down the interest rate level compatible with full employment. The fall is so great that this interest-rate level is below zero. 1  See IMF (2014). 2  See King and Low (2014). 3  See Armelius et al. (2014). 4  See Summers (2014). 2  BIS central bankers’ speeches  Representatives of the other explanation, for instance Kenneth Rogoff,5 put greater emphasis on more short-term factors directly linked to the financial crisis, such as high indebtedness and increased uncertainty, which have held back investment and got households to save more.
Philipp Hildebrand: Setting the course for the Swiss economy – challenges for the Swiss financial centre and outlook for the future Summary of a speech by Mr Philipp Hildebrand, Chairman of the Governing Board of the Swiss National Bank, to the Zürcher Volkswirtschaftliche Gesellschaft, Zurich, 17 May 2010. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  The Swiss banks face two major challenges. First, sooner or later, they will have to carry out their core business – asset management for foreign customers – in a tax-conform environment. Second, the big banks will be required to operate under more stringent regulatory requirements. These challenges are likely to lead to structural changes in the financial centre. How are such changes likely to affect the Swiss economy? An empirical analysis shows that, although the financial centre plays an important role in the Swiss economy, it also entails considerable risks. In the case of cross-border asset management, the relationship between the risk to the economy and the income earned is acceptable. However, this is hardly the case for the banks’ own trading activities. Consequently, current regulatory efforts could not only improve the stability of the financial sector, but also increase both the profitability of banks and the benefit which the Swiss economy derives from the financial sector over the long-term period.