Three Theories of Natural Rate Dynamics

Galo Nuño Barrau

No 11878, CESifo Working Paper Series from CESifo

Abstract: The natural interest rate is the real rate that would prevail in the long-run. The standard view in macroeconomics is that the natural rate depends exclusively on structural factors such as productivity growth and demographics. This paper challenges this view by discussing three alternative, and complementary, views: (i) that the natural rate depends on fiscal policy via the stock of risk-free assets; (ii) that it depends on monetary policy via the central bank in ation target; and (iii) that it depends on persistent supply shocks such as tariffs or wars. These three theories share the relevance of precautionary savings motives. We conclude by drawing some lessons for monetary policy design.

Keywords: HANK model; monetary-fiscal interactions; deep learning; cost-push shocks (search for similar items in EconPapers)
JEL-codes: E32 E58 E63 (search for similar items in EconPapers)
Date: 2025
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