BRUSSELS – The first decade of this century started with the so-called dot-com bubble. When it burst, central banks moved aggressively to ease monetary policy in order to prevent a prolonged period of Japanese-style slow growth. But the prolonged period of low interest rates that followed the 2001 recession instead contributed to the emergence of another bubble, this time in real estate and credit.
With the collapse of the second bubble in a decade, central banks again acted quickly, lowering rates to zero (or close to it) almost everywhere. Recently, the United States Federal Reserve has even engaged in an unprecedented round of “quantitative easing” in an effort to accelerate the recovery. Again, the key argument was the need to avoid a repeat of Japan’s “lost decade.”