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Projecting the Long-Run Natural Rate of Interest

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  • Kevin J. Lansing
Abstract
The ?natural? rate of interest?the real rate consistent with full use of economic resources and steady inflation near the Fed?s target level?is an important benchmark for monetary policy. Current estimates suggest that this rate is near zero, but it is expected to rise gradually in the years ahead as real GDP returns to its long-run potential. If the historical statistical relationship between the growth rate of potential GDP and the natural rate holds true in the future, then a 2% long-run growth rate would imply a long-run natural rate of around 1%.

Suggested Citation

  • Kevin J. Lansing, 2016. "Projecting the Long-Run Natural Rate of Interest," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00103
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    Cited by:

    1. Lansing, Kevin J., 2021. "Endogenous forecast switching near the zero lower bound," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 153-169.

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