Richard Portes
Professor, London Business School and CEPR

Nicolas Véron
Senior Fellow, Peterson Institute for International Economics


Richard Portes will present the findings of the new report “Lower for longer – macroprudential policy issues arising from the low interest rate environment,” published by the European Systemic Risk Board, and an VoxEU article on the report.

A Q&A and discussion with the audience moderated by PIIE president Adam S. Posen will follow.



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John Fell, Tuomas Peltonen, Richard Portes, 02 June 2021

At the end of 2019 the European Systemic Risk Board General Board mandated a Task Force on Low Interest Rates to revisit the ESRB’s 2016 report on “Macroprudential policy issues arising from low interest rates and structural changes in the EU financial system”, assess subsequent developments, compare these to the risks identified in the report, and assess whether new sources of systemic risk have emerged. Furthermore, the Task Force was mandated to review progress in relation to the policy proposals in the earlier report, as well as propose possible new policy actions aimed at mitigating potential systemic risks. As this column discusses, the new report finds that the low interest rate environment continues to pose risks for financial stability. For instance, since 2016, search-for-yield behaviour has intensified in the banking and investment fund sectors, and some business models are proving unsustainable. To address these sources of risk and vulnerabilities, the report puts forward a wide range of policy options.

Phurichai Rungcharoenkitkul, Claudio Borio, Piti Disyatat, 22 December 2020

In recent years, a key challenge for central banks has been the shrinking room for policy manoeuvre as interest rates have declined to historical lows in many countries. The Covid-19 pandemic has inevitably exacerbated the problem. Once the worst is over, rebuilding policy space will be critical. This column presents a theoretical model in which the impact of monetary policy on financial vulnerabilities can complicate that challenge by constraining policy choices down the road. The model includes two realistic features typically excluded from standard setups: banks create money, and lending behaviour generates endogenous booms and busts. As it turns out, in such a framework the very notion of a natural rate of interest driven by saving and investment comes into question.

CEPR Policy Research