Noëmie Lisack
- 7 February 2025
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 1, 2025Details
- Abstract
- This box provides an update on estimates of the natural rate of interest, or r*, published in Issue 1, 2024 of the Economic Bulletin. r* is commonly referred to as the real rate of interest that is neither expansionary nor contractionary. Broad trends in r* can be used to gauge economic risks, such as the potential constraint of the lower bound on interest rates. However, estimating r* is fraught with wide-ranging uncertainties and conceptual limitations. These uncertainties stem from model selection, parameter estimation, filter techniques and variation in real-time data. The inherent uncertainty in estimating r* and its conceptual challenges limit its practical use to determine the appropriate stance of monetary policy at a specific point in time.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
C54 : Mathematical and Quantitative Methods→Econometric Modeling→Quantitative Policy Modeling
- 7 February 2024
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 1, 2024Details
- Abstract
- The natural rate of interest is defined as the real rate of interest that is neither expansionary nor contractionary. r* is unobservable and its estimation is fraught with a host of measurement and model-specification challenges. A wide range of estimates obtained from a suite of models and approaches suggests that cyclical measures of euro area r* have been edging higher recently. Yet slow-moving estimates anchored to long-run economic trends are unlikely to have risen measurably.
- JEL Code
- E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy