The Asymmetric Costs of Misperceiving R-star
Andrea Ajello,
Isabel Cairo,
Vasco Cúrdia and
Albert Queraltó
Additional contact information
Albert Queraltó: https://www.federalreserve.gov/econres/albert-queralto.htm
FRBSF Economic Letter, 2021, vol. 2021, issue 01, 01-05
Abstract:
The natural rate of interest, or r-star, is used to evaluate whether monetary policy is restrictive or supportive of economic activity. However, this benchmark rate can only be estimated, and policymakers’ misperceptions of the level of the natural rate can carry substantial economic costs in terms of unemployment and inflation. A scenario using mistaken perceptions shows that the costs of overestimating the natural rate are greater than the cost of underestimating it if policy space is limited by the effective lower bound on the nominal federal funds rate.
Keywords: r-star; natural rate of interest (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
https://www.frbsf.org/economic-research/files/el2021-01.pdf Full text – article PDF
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfel:89418
Ordering information: This journal article can be ordered from
Access Statistics for this article
More articles in FRBSF Economic Letter from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().