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The natural rate of interest: which concept? which estimation method? which policy conclusions?

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  • Jesús Cuaresma
  • Ernest Gnan

Abstract

The natural rate of interest has become popular again both in academic and monetary policy circles. But which concept are we actually talking about? This paper argues that there are many—theoretical and empirical—uncertainties that limit the application of the natural rate in practical monetary policy. Examples of natural rate of interest estimates for the euro area are compared, as well as monetary policy rules derived from them. The paper concludes with a tentative longer-term perspective on the future outlook for the natural rate in the euro area, touching upon effects from aging, productivity developments, private and public savings, as well as globalization.

Suggested Citation

  • Jesús Cuaresma & Ernest Gnan, 2007. "The natural rate of interest: which concept? which estimation method? which policy conclusions?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 29(4), pages 667-688.
  • Handle: RePEc:mes:postke:v:29:y:2007:i:4:p:667-688
    DOI: 10.2753/PKE0160-3477290407
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    References listed on IDEAS

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    1. P Arestis & A Mihailov, 2009. "Flexible Rules cum Constrained Discretion: A New Consensus in Monetary Policy," Economic Issues Journal Articles, Economic Issues, vol. 14(2), pages 27-54, September.

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