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The Natural Rate of Interest I: Theory

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  • Philipp König
  • Dmitry Chervyakov

Abstract

The term natural (or neutral) real interest rate refers to the equilibrium value of the real interest rate. As this equilibrium is usually conceived as a situation where inflationary or deflationary pressures have abated, the natural real interest rate is a key concept for central banks seeking to stabilize the general price level or targeting the rate of inflation. The present roundup provides a brief historical review of this concept and explains the relevance of the natural real rate for monetary policy analysis.

Suggested Citation

  • Philipp König & Dmitry Chervyakov, 2017. "The Natural Rate of Interest I: Theory," DIW Roundup: Politik im Fokus 108, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwrup:108en
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.551201.de/DIW_Roundup_108_en.pdf
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    References listed on IDEAS

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