The persistent and generalised decline in the U. S. interest rates: an alternative interpretation

Interest rates in the USA and in other countries have experienced persistent and generalised declines since the 1980s. The main interpretations of this phenomenon ignore the role of monetary factors, such as financial and monetary policy. The essay proposes an alternative interpretation based on the choice of the Federal Reserve (FED) to conduct monetary policy by attributing high priority to financial-stability. The interaction between changes in financial regulation, the transformation of "specialized" banking into "universal", and the FED's concern with financial instability have led the central bank to add to the role of "lender of last resort" that of "lender of first resort" that systematically provides liquidity at a low cost to financial firms. This new conduct of monetary policy has produced the downward trend in interest rates.