Dr. Kieran McQuinn:

One of its key points is to question why interest rates are so low at present. What are the determinants of that? How is that likely to evolve or change in the future? Larry Summers has done considerable work on why we have had such low interest rates over a longer period of time. One of the reasons highlighted in western economies is the demographic shift that is being observed in societies. It is also tied into the relatively low rates of economic growth in western economies in Europe and the United States in recent years. Consequently, there has not been the pressure on interest rates there was previously.

A number of factors are contributing to the low interest rate environment. Obviously, policies of central banks have been instrumental, particularly in the euro area in the past ten years, in keeping interest rates low. The determinants of why the natural long-run interest rate is so low are likely to remain the case in the long run. Obviously, the major shock of the whole Ukrainian issue, especially the energy price shock, could disrupt that in the short to medium term. The longer term outlook would certainly point in that direction.