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The natural rate of interest: An estimate for the United Kingdom

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  • Anthony J Evans

Abstract

The natural rate of interest, also known as R*, is a central concept for many monetary economists. Although policymakers and commentators make judgements based on an implicit belief regarding its value, attempts to measure it are quite rare. This article uses productivity data to estimate the natural rate for the UK economy during 1998–2018. It finds that the median real natural rate up to and including 2008:2 was 2.11 per cent and has been 1.9 per cent since then. This supports the view that the natural rate can change over time and has fallen in recent years. Policymakers who use the natural rate as a benchmark should therefore monitor this more closely.

Suggested Citation

  • Anthony J Evans, 2020. "The natural rate of interest: An estimate for the United Kingdom," Economic Affairs, Wiley Blackwell, vol. 40(1), pages 24-35, February.
    • Handle: RePEc:bla:ecaffa:v:40:y:2020:i:1:p:24-35
    DOI: 10.1111/ecaf.12385
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