Jan Willem van den End, Marco Hoeberichts, 25 April 2018

Persistent low interest rates prompt the question of whether the natural, or equilibrium, rate of interest has similarly shifted downwards. This column uses data for seven OECD countries to explore how low interest rates have affected potential output. The results lend support to concerns that a prolonged period of low real interest can reduce the natural rate. This causality can run through both real and financial channels.

Sayuri Shirai, 06 October 2017

Interest rates in many advanced economies have been declining since the 1990s. This column takes a close look at the case of Japan. In 2013 the Bank of Japan pursued a policy of quantitative and qualitative monetary easing that aimed to lower the real interest rate substantially below its natural rate. The evidence suggests that this policy has had mixed success at best, and that the natural rate of interest may decline in the foreseeable future.

Alex Cukierman, 15 October 2016

The decline in long-term interest rates has nurtured the view of a persistent shift of the natural rate into negative territory. This column argues that existing estimates of the natural rate, based on the New Keynesian model, are likely to be biased downward. It makes a case for introducing long-term risky natural rates into the analysis of monetary policy, which could shed more light on the role of risk attitudes, the structure of financial institutions, and regulation in the determination of potential output and economic activity.

Claudio Borio, Piti Disyatat, 25 June 2014

Real interest rates have fallen to historic lows, and some economists are concerned that an era of secular stagnation has begun. This column highlights the role of policy frameworks and financial factors – particularly debt – in linking low real interest rates and sluggish economic growth. Policies that do not lean against booms but ease aggressively and persistently in busts induce a downward bias in interest rates over time and an upward bias in debt levels – something akin to a debt trap. Low real interest rates may thus be self-reinforcing and not always ‘natural’.


CEPR Policy Research