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Even as US rate-setters make tentative progress in the direction of more normal monetary policy, economists are warning that central banks are set to find themselves with official interest rates stuck back down at near-zero levels dispiritingly often in the future.

A study to be presented at the Brookings Papers conference this week by two Federal Reserve Board economists finds that rates could hit zero as much as 40 per cent of the time – far more often than predicted by other studies.

It also estimates that episodes of rates at zero will last on average two and a half years. The frequency of episodes of ultra-low rates could make it harder for the Federal Reserve to hit its employment and inflation targets, according to the study.

Part of the problem is a decline in the neutral rate of interest – the short-term rate consistent with price stability and economic output at its potential level. This rate may have fallen for a number of reasons, including slower technological progress, an ageing population, and a shift in the demand for safe assets.

The study was written by Michael T. Kiley and John M. Roberts of the Federal Reserve Board. It comes amid an intense debate about the dangers that central banks will regularly run out of monetary firepower in the future amid subdued growth and inflation.

One proposed response to this has been for central banks to shoot for a higher inflation target.

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