Abstract: There has been a lot of speculation lately about whether the natural rate of interest has fallen, and if so, by how much. There are many related definitions of the natural rate, but we will define it as the real (inflation-adjusted) safe interest rate that the economy will converge to over time. This can be thought of as the neutral interest rate in the long term, that is, the real interest rate consistent with the central bank’s inflation and employment mandates. It is important to remember that this interest rate is not a policy choice but instead is governed by factors such as world savings and interest rates, productivity growth, and demographics. We will look at estimates of long-term real interest rates and the preceding factors.
Publication Year: 2015
Publication Date: 2015-12-07
Language: en
Type: article
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