SUERF OeNB r star Reis Neri Penalver Gnan 20231207
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On 7 December 2023, around 200 international experts met in Vienna and online for a workshop, jointly organized by SUERF-The European Money and Finance Forum and the Oesterreichische Nationalbank, on “Equilibrium Real Interest Rates – concepts, current and future drivers: New insights and policy implications” – see: https://www.suerf.org/r*.
A secular decline in the estimated neutral interest rate – the rate at which inflation is stable (at the central bank ‘s target) – often abbreviated as “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 many estimates point to 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, and to what level nominal interest rates will fall back once inflation is back to target. 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. If r* continued to be very close to zero, this would imply that central banks would also in the future during recessions or crises have to resort to far-reaching measures, notably large-scale asset purchase programs, to stabilize the economy and to prevent inflation from falling below target.
The workshop called for a broader view of “equilibrium interest rate”. It explored 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). In addition to a comparative and careful juxtaposition and appraisal of the various concepts, the workshop sought to explore past and future trends in the level of these various “equilibrium rates”, and which “equilibrium rate of interest” may be most informative for which policy purpose.
This video documents Session 1 of the workshop, which featured a keynote lecture by LSE Professor and SUERF Fellow Ricardo Reis, and two discussions by top central bank economists Stefano Neri, Banca d’Italia, and Adrian Penalver, Banque de France.
Timeline and speakers:
00:00:13 - Ernest Gnan, Secretary General, SUERF: Opening and introduction
00:00:27 – Ricardo Reis, A. W. Phillips Professor of Economics, LSE I SUERF Fellow: The future long-run level of interest rates
00:51:45 - Stefano Neri, Head, Economic Outlook and Monetary Policy Directorate, Banca d’Italia I SUERF: The future long run level of interest rates
01:05:14 - Adrian Penalver, Deputy Director, Monetary and Financial Studies Directorate, Banque de France: Which r-star, public bonds or private investment? Measurement and policy implications
01:17:08 - Discussion, Q&A
01:26:29 - Ernest Gnan: Closing and farewell
© SUERF and OeNB, 2023. For the workshop program and slides see: https://www.suerf.org/r*. Views are those expressed by speakers only and not those of their affiliated institutions or SUERF. For SUERF further events see: https://www.suerf.org/events. For SUERF Policy Briefs and Notes see: https://www.suerf.org/policynotes. Become a SUERF member: https://www.suerf.org/membership.
A secular decline in the estimated neutral interest rate – the rate at which inflation is stable (at the central bank ‘s target) – often abbreviated as “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 many estimates point to 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, and to what level nominal interest rates will fall back once inflation is back to target. 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. If r* continued to be very close to zero, this would imply that central banks would also in the future during recessions or crises have to resort to far-reaching measures, notably large-scale asset purchase programs, to stabilize the economy and to prevent inflation from falling below target.
The workshop called for a broader view of “equilibrium interest rate”. It explored 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). In addition to a comparative and careful juxtaposition and appraisal of the various concepts, the workshop sought to explore past and future trends in the level of these various “equilibrium rates”, and which “equilibrium rate of interest” may be most informative for which policy purpose.
This video documents Session 1 of the workshop, which featured a keynote lecture by LSE Professor and SUERF Fellow Ricardo Reis, and two discussions by top central bank economists Stefano Neri, Banca d’Italia, and Adrian Penalver, Banque de France.
Timeline and speakers:
00:00:13 - Ernest Gnan, Secretary General, SUERF: Opening and introduction
00:00:27 – Ricardo Reis, A. W. Phillips Professor of Economics, LSE I SUERF Fellow: The future long-run level of interest rates
00:51:45 - Stefano Neri, Head, Economic Outlook and Monetary Policy Directorate, Banca d’Italia I SUERF: The future long run level of interest rates
01:05:14 - Adrian Penalver, Deputy Director, Monetary and Financial Studies Directorate, Banque de France: Which r-star, public bonds or private investment? Measurement and policy implications
01:17:08 - Discussion, Q&A
01:26:29 - Ernest Gnan: Closing and farewell
© SUERF and OeNB, 2023. For the workshop program and slides see: https://www.suerf.org/r*. Views are those expressed by speakers only and not those of their affiliated institutions or SUERF. For SUERF further events see: https://www.suerf.org/events. For SUERF Policy Briefs and Notes see: https://www.suerf.org/policynotes. Become a SUERF member: https://www.suerf.org/membership.
