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Measuring the Natural Rate of Interest Redux
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Measuring the Natural Rate of Interest Redux

Thomas Laubach and John C. Williams
FRBSF, 2015
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8

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Are low interest rates the new normal? In this provocative report, central bankers Thomas Laubach and John C. Williams suggest that the natural rate of interest – the rate that prevails when national output is at its potential – has moved to a permanently low level. Though their study doesn’t take into account structural changes that could hike GDP, such as the impact of new technologies, their model lays out a strong case for an ongoing low-interest rate environment. getAbstract suggests that economists, investors and policy makers read this informative, topical report.

Take-Aways

  • The natural rate of interest – the rate at which the economy performs at its maximum capacity – has fallen to historical lows of 0% since the Great Recession.
  • Despite the US economic recovery, the rate has shown no sign of moving up.
  • It is still unclear if this decline is temporary, due to the lingering effects of the Great Recession, or permanent, due to changes in the global economy, demographics or productivity growth.

About the Authors

Thomas Laubach is director of the Board of Governors of the Federal Reserve System, and John C. Williams is president of the Federal Reserve Bank of San Francisco.

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