An Update on the Neutral Rate of Interest

José Dorich, Abeer Reza and Subrata Sarker
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Subrata Sarker: Bank of Canada, https://www.bankofcanada.ca/

Bank of Canada Review, 2017, vol. 2017, issue Autumn, 27-41

Abstract: The neutral rate serves as a benchmark for measuring monetary stimulus and provides a medium- to long-run anchor for the real policy rate. Global neutral rate estimates have been falling over the past few decades. Factors such as population aging, high corporate savings, and low trend productivity growth are likely to continue supporting a low global neutral rate. These global factors as well as domestic factors are exerting downward pres-sure on the Canadian real neutral rate, which is estimated to be between 0.5 to 1.5 per cent. This low neutral rate has important implications for monetary policy and financial stability.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bcarev:v:2017:y:2017:i:autumn17:p:27-41

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