Projecting the Long-Run Natural Rate of Interest

Kevin Lansing

FRBSF Economic Letter, 2016

Abstract: The ?natural? rate of interest?the real rate consistent with full use of economic resources and steady inflation near the Fed?s target level?is an important benchmark for monetary policy. Current estimates suggest that this rate is near zero, but it is expected to rise gradually in the years ahead as real GDP returns to its long-run potential. If the historical statistical relationship between the growth rate of potential GDP and the natural rate holds true in the future, then a 2% long-run growth rate would imply a long-run natural rate of around 1%.

Date: 2016
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