Equilibrium Real Interest Rates – concepts, current and future drivers: New insights and policy implications

A secular decline in r* was one of the key drivers of the strategy reviews carried out by the ECB and the FED in the years 2019-2021. While we have seen an increase in r* after the multiple shocks that started with the Covid crisis, it is not clear whether the secular decline in r* may have stopped or reversed or whether this increase is only temporary. This is an important question in the short-term because it will give an indication of how much central banks have to tighten to reign on inflation. In the medium and long-term it is important because it will influence the type of instruments that central banks should have in their toolkits if we were again approaching the effective lower bound on interest rates.

This workshop calls for a broader view of “equilibrium interest rate”. It explores various concepts of the natural rate along different dimensions, such as time (short versus long-run horizon, short-term versus long-term rates) or sectoral (public debt vs. private capital). Moreover, it addresses the novel concept of the financial (in)stability rate of interest. In addition to a comparative and careful juxtaposition and appraisal of the various concepts, the workshop seeks to answer the following questions: (1) What are past and future trends in the level of these various “equilibrium rates”? (2) Which “equilibrium rate of interest” may be most informative for which policy purpose?

This workshop brings together the latest theoretical and empirical research on this topic, which is central for both monetary policy and longer-term structural policies. Presentations aim to be accessible to audiences active in the policy, advisory and investment community, to allow immediate insights for policy and investment decisions.

Scientific coordination: Ernest Gnan, SUERF and Maria T. Valderrama, OeNB