The irrationality of euro-zone savers

M onetary policy choices and the functioning of financial markets are hindered by the irrationality of savers in the euro zone. Since interest rates have been very low: They have invested massively in bonds and not in equities, when bond yields have been extremely low; They have increased their savings rate, when the return on savings has fallen sharply and it is impossible to preserve the level of income from savings by saving more. This has led to: The persistence of abnormally high equity risk premia; The absence of an effect of the ECB’s expansionary monetary policy on the euro zone’s private savings rate or on the investment-savings equilibrium in the euro zone. .