Natural rate estimates for the euro area: insights, uncertainties and shortcomings

Claus Brand, Noëmie Lisack and Falk Mazelis

Economic Bulletin Boxes, 2025, vol. 1

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 Classification: E52, E43, C54

Keywords: Neutral; or; natural; real; rate; of; interest (search for similar items in EconPapers)
Date: 2025-02
Note: 92649
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