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Calculating the Natural Rate of Interest : A Comparison of Two Alternative Approaches, No. 15-10

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Calculating the Natural Rate of Interest : A Comparison of Two Alternative Approaches, No. 15-10

DATE: October 2015

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ABSTRACT: The natural rate of interest is a key concept in monetary economics because its level relative to the real rate of interest allows economists to assess the stance of monetary policy. However, the natural rate cannot be observed; it must be calculated using identifying assumptions. This Economic Brief compares the popular Laubach-Williams approach to calculating the natural rate with an alternative method that imposes fewer theoretical restrictions. Both approaches indicate that the natural rate has been above the real rate for a long time.

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Lubik, Thomas A. , Matthes, Christian, 1979- and Federal Reserve Bank of Richmond. "Calculating the Natural Rate of Interest : A Comparison of Two Alternative Approaches, No. 15-10," Economic Brief (October 2015). https://fraser.stlouisfed.org/title/6034/item/583941, accessed on January 29, 2023.

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