The Critical Role of Conventional Beliefs in Economics: Multiple r*’s and Structural Indeterminacies

This article extends the analytical framework developed in forthcoming The Critical Role of ‘Conventional Beliefs’ in Economics (Bossone, 2026 forthcoming) by applying it to the concept of the natural interest rate, or r^*. It shows that this is not pinned down by preferences and technology, but rather a belief-contingent variable, shaped by prevailing expectations regimes. When agents coordinate around pessimistic views of future demand or policy ineffectiveness, the economy can settle into rational low-growth, low-rate equilibria, and vice versa when their views are optimistic. These belief-driven dynamics generate multiple equilibria, endogenous liquidity traps, and hysteresis, even in the absence of structural frictions. As macroeconomic parameters become belief-sensitive, traditional filtering methods fail to identify r^* reliably across regimes, leading to systematic policy miscalibration. The coexistence of multiple belief-consistent natural rates implies a new form of policy multiplicity: rules coherent within one belief regime may be inconsistent with another. These results challenge the structural interpretation of r^*and call for credibility-sensitive policy frameworks capable of coordinating expectations in belief-dependent environments.