The Post-Pandemic r*

Abstract

The debate about the natural rate of interest, or r*, sometimes overlooks the point that there is an entire term structure of r* measures, with short-run estimates capturing current economic conditions and long-run estimates capturing more secular factors. The whole term structure of r* matters for policy: shorter run measures are relevant for gauging how restrictive or expansionary current policy is, while longer run measures are relevant when assessing terminal rates. This two-post series covers the evolution of both in the aftermath of the pandemic, with today’s post focusing especially on long-run measures and tomorrow’s post on short-run r*.

To view post: https://libertystreeteconomics.newyorkfed.org/2023/08/the-post-pandemic-r/

Keywords: r*, r-star, post-pandemic r-star, dynamic stochastic general equilibrium (DSGE)

JEL Classification: E4, E5