The natural interest rate : concept, determinants and implications for monetary policy

Abstract

This article defines the natural interest rate, analysing the concept and its role in monetary policy conduct. Estimates of the natural interest rate place it at historically low and even negative levels. Demographics and growth, but also the recent financial crisis with weak aggregate demand, deleveraging, etc., are identified as factors related to this decline. Lastly, the article highlights the difficulties that a natural rate of this type may pose to central banks in achieving their objectives, and it discusses potential monetary policy-related solutions, such as QE and changes in the monetary policy objective