The natural rate of interest: estimates, drivers, and challenges to monetary policy
Claus Brand (),
Marcin Bielecki () and
Adrian Penalver ()
No 308, NBP Working Papers from Narodowy Bank Polski, Economic Research Department
Using a wide range of models we document a protracted fall in the natural (or neutral) rate of interest in advanced economies, driven by ageing, waning productivity growth, arise in mark-ups, and a surge in risk aversion in the wake of the global ﬁnancial crisis. While our neutral rate estimates are highly uncertain and model dependent, most of them have been negative in the wake of the ﬁnancial crisis. This observation is highly relevant for assessing the monetary policy stance and the risk of monetary policy becoming constrained by the lower bound on nominal interest rates. We highlight model dependence of natural rate estimates by illustrating large diﬀerences in their stabilising properties, depending on the context chosen. We also emphasise high statistical uncertainty of natural rate estimates within models. Looking ahead, a return to higher levels would have to come from a reversal in risk aversion and ﬂight to safety and a boost in productivity. To achieve this, structural reforms are crucial.
Keywords: Natural rate of interest; return on capital; demographics; productivity growth; monetary policy (search for similar items in EconPapers)
JEL-codes: E43 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mac, nep-mon and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:308
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