A key question: What accounts for the low real interest rates?

The very low real interest rates in OECD countries enable debt ratios to be very high without this creating any problems. To determine whether real interest rates may or may not rise, we have to identify what accounts for their very low level, which can be due to: A decline in potential growth; A savings surplus and excess demand for risk-free bonds; Expansionary monetary policies. If the very low level of real interest rates is explained by permanent structural causes (low productivity gains, excess savings), it cannot rise rapidly or if it rises, it will rise in parallel with growth: in that case there cannot be any debt crisis. But if it is due to monetary policies, it may pick up if monetary policies become less expansionary, for example in the event of an inflationary shock. We find that it is monetary policy that explains why real long-term interest rates have become very low.