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The Future Fortunes of R-star: Are They Really Rising?

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Abstract

In the current economic environment, it?s important to distinguish between the strong economic conditions and the key longer-run drivers underpinning interest rates. Three factors?demographics, productivity growth, and the demand for safe assets?all point to the natural rate of interest, known as r-star, remaining low for quite some time. The following is adapted from a speech by the president and CEO of the Federal Reserve Bank of San Francisco to the Economic Club of Minnesota in Minneapolis on May 15.

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  • John C. Williams, 2018. "The Future Fortunes of R-star: Are They Really Rising?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00164
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    1. International Monetary Fund [IMF], 2018. "World Economic Outlook, April 2018: Cyclical Upswing, Structural Change," Working Papers id:12768, eSocialSciences.
    2. Congressional Budget Office, 2018. "The Budget and Economic Outlook: 2018 to 2028," Reports 53651, Congressional Budget Office.
    3. Carvalho, Carlos & Ferrero, Andrea & Nechio, Fernanda, 2016. "Demographics and real interest rates: Inspecting the mechanism," European Economic Review, Elsevier, vol. 88(C), pages 208-226.
    4. Shigeaki Fujiwara & Yuto Iwasaki & Ichiro Muto & Kenji Nishizaki & Nao Sudo, 2016. "Supplementary Paper Series for the "Comprehensive Assessment" (2): Developments in the Natural Rate of Interest in Japan," Bank of Japan Review Series 16-E-12, Bank of Japan.
    5. John G. Fernald, 2016. "What Is the New Normal for U.S. Growth?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    6. Etienne Gagnon & Benjamin K. Johannsen & David López-Salido, 2021. "Understanding the New Normal: The Role of Demographics," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 69(2), pages 357-390, June.
    7. Marco Del Negro & Domenico Giannone & Marc P. Giannoni & Andrea Tambalotti, 2017. "Safety, Liquidity, and the Natural Rate of Interest," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(1 (Spring), pages 235-316.
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    Cited by:

    1. Del Negro, Marco & Giannone, Domenico & Giannoni, Marc P. & Tambalotti, Andrea, 2019. "Global trends in interest rates," Journal of International Economics, Elsevier, vol. 118(C), pages 248-262.
    2. Claudio Borio, 2021. "Navigating by r*: safe or hazardous?," BIS Working Papers 982, Bank for International Settlements.
    3. Saeed Zaman, 2021. "A Unified Framework to Estimate Macroeconomic Stars," Working Papers 21-23R2, Federal Reserve Bank of Cleveland, revised 31 May 2024.

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