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

  • Jesús Crespo Cuaresma
  • Ernest Gnan

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 manyâtheoretical and empiricalâuncertainties 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.

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Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 29 (2007)
Issue (Month): 4 (July)
Pages: 667-688

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Handle: RePEc:mes:postke:v:29:y:2007:i:4:p:667-688
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  1. Miles, David K, 1997. "Modelling the Impact of Demographic Change Upon the Economy," CEPR Discussion Papers 1762, C.E.P.R. Discussion Papers.
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  13. Joanne Archibald & Leni Hunter, 2001. "What is the neutral real interest rate, and how can we use it?," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 64, September.
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  18. Gerhard Reitschuler & Jesús Crespo Cuaresma, 2004. "Ricardian Equivalence Revisited: Evidence from OECD countries," Economics Bulletin, AccessEcon, vol. 5(16), pages 1-10.
  19. Neiss, Katharine S. & Nelson, Edward, 2003. "The Real-Interest-Rate Gap As An Inflation Indicator," Macroeconomic Dynamics, Cambridge University Press, vol. 7(02), pages 239-262, April.
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