“Running out of room: revisiting the 3D perspective on low interest rates," Speech by Gertjan Vlieghe at the London School of Economics. Woodford, M. (2003). “Interest and Prices: Foundations of a Theory of Monetary Policy  ”,  Princeton University Press, Princeton (2003). 1. This speech will use a variety of real interest rate estimates, all of which adjust nominal interest rates for expected inflation. 2. For example, some approaches take a ‘longer-run’ perspective, according to which the equilibrium interest rate is the real rate expected to prevail after the economy has adjusted to any cyclical fluctuations (Laubach and Williams, 2003). Other approaches allow for short-term fluctuations in the equilibrium interest rate, defining it as the real rate that would prevail if prices were flexible (Woodford, 2003). 3. See Bank of England (2018) and Bailey et al. (2022). 4. For example, the analysis in Bank of England (2018) assesses that during the global financial crisis, headwinds to demand (including heightened uncertainty and tighter financial conditions) prompted a large fall in the cyclical component that took many years to dissipate. 5. The focus of this speech is on the longer-term structural trends and what might be driving them, for which longer time series of data are preferred. To enable cross-country comparisons, the real rate data are constructed by adjusting market measures of nominal interest rates for inflation. Consistent with the structural model analysis below, the  Page 21 sample is truncated in 2015. Del Negro et al. (2019), Holston et al. (2017) and Hamilton et al.
When Bank Negara Malaysia and the Bank of Thailand first operationalized this arrangement between our central banks in March 2016, we saw the potential and benefits for local currencies to play a more important role in enhancing regional trade linkages. The expansion of the arrangement today to include our close trade partner, Indonesia, underscores this potential. The signing of this MoU between Bank Indonesia and Bank Negara Malaysia represents another important milestone in the move to strengthen the relationship between Malaysia and Indonesia. Following the conclusion of the ASEAN Banking Integration Framework, we are confident financial institutions in both countries will be able to collaborate towards realizing the objective of facilitating greater cross-border trade and investments. Both Thailand and Indonesia share important links with Malaysia, forged through a long history of trade and investment activities, and close cooperation between our central banks. This occasion reflects how far we have come in this process. The cooperation arrangements between our central banks have now expanded to include clearly defined protocols and operational frameworks in a broad range of areas, including financial market development, supervision, surveillance, payment arrangements and crisis management. Bank Negara Malaysia has long been a strong supporter of financial and economic integration in both ASEAN and broader Asia – to unlock the region’s growth potential and support a stronger, more resilient economic community.