IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Atheoretical and Theory-Based Approaches to the Natural Equilibrium Real Interest Rate

  • Philip Arestis


    (Department of Land Economy, Cambridge Centre for Economic and Public Policy, University of Cambridge, 19 Silver Street, Cambridge CB3 9EP, UK.)

  • Georgios E Chortareas


    (Department of Economics, University of Athens, Euripidou 14, Athens, Greece.)

Recent theoretical developments and practical monetary policy concerns have revived interest on the concept of a “natural” equilibrium real interest rate. The natural real interest rate is potentially an important concept for monetary policy makers. The observable market real interest rate and the natural real rate may deviate and the resulting gap can be used to evaluate the stance of monetary policy. A number of diverse empirical approximations to the natural rate exist causing a great deal of uncertainty about its value and concern about its applicability among central bankers. In this paper, we first examine the notion of the natural rate in view of the different interpretations that have been attached to the — unobservable — natural real interest rate and we summarize and critically evaluate the existing approaches for quantifying it. We then use a dynamic stochastic general equilibrium framework to obtain a theory-based measure of the natural interest rate in the US that is time varying. Eastern Economic Journal (2008) 34, 390–405. doi:10.1057/palgrave.eej.9050040

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: Link to full text PDF
Download Restriction: Access to full text is restricted to subscribers.

File URL:
File Function: Link to full text HTML
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Palgrave Macmillan in its journal Eastern Economic Journal.

Volume (Year): 34 (2008)
Issue (Month): 3 ()
Pages: 390-405

in new window

Handle: RePEc:pal:easeco:v:34:y:2008:i:3:p:390-405
Contact details of provider: Web page:

Order Information: Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
Web: Email:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pal:easeco:v:34:y:2008:i:3:p:390-405. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Daniel Foley)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.