New Evidence for a Lower New Normal in Interest Rates

Jens Christensen and Glenn Rudebusch

FRBSF Economic Letter, 2017

Abstract: Interest rates during the current economic recovery have been unusually low. Some have argued that yields have been pushed down by declines in longer-run expectations of the normal inflation-adjusted short-term interest rate?that is, by a drop in the so-called equilibrium or natural rate of interest. New evidence from financial markets shows that a decline in this rate has indeed contributed about 2 percentage points to the general downward trend in yields over the past two decades.

Date: 2017
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