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Report
Measuring the Natural Rate of Interest after COVID-19
We modify the Laubach-Williams and Holston-Laubach-Williams models of the natural rate of interest to account for time-varying volatility and a persistent COVID supply shock during the pandemic. Resulting estimates of the natural rate of interest in the United States, Canada, and the Euro Area at the end of 2022 are close to their respective levels estimated directly before the pandemic; that is, we do not find evidence that the era of historically low estimated natural rates of interest has ended. In contrast, estimates of the natural rate of output have declined relative to those projected ...
Working Paper
Measuring the Natural Rate of Interest : International Trends and Determinants
U.S. estimates of the natural rate of interest ? the real short-term interest rate that would prevail absent transitory disturbances ? have declined dramatically since the start of the global financial crisis. For example, estimates using the Laubach-Williams (2003) model indicate the natural rate in the United States fell to close to zero during the crisis and has remained there through the end of 2015. Explanations for this decline include shifts in demographics, a slowdown in trend productivity growth, and global factors affecting real interest rates. This paper applies the ...