Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/192965
Editors: 
Brand, Claus
Bielecki, Marcin
Penalver, Adrian
Year of Publication: 
2018
Series/Report no.: 
ECB Occasional Paper 217
Abstract: 
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, a rise 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.
Subjects: 
Natural rate of interest
return on capital
demographics
productivity growth
monetary policy
JEL: 
E52
E43
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3376-6
Document Type: 
Research Report
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