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It is Only Natural: Europe’s Low Interest Rates

Author

Listed:
  • Mr. Marco Arena
  • Gabriel Di Bella
  • Mr. Alfredo Cuevas
  • Mr. Borja Gracia
  • Vina Nguyen
  • Alex Pienkowski

Abstract

Estimates of the natural interest rate are often useful in the analysis of monetary and other macroeconomic policies. The topic gathered much attention following the great financial crisis and the Euro Area debt crisis due to the uncertainty regarding the timing of monetary policy normalization and the future path of interest rates. Using a sample of European countries (including several members of the Euro Area), this paper provides estimates of country-specific natural interest rates and some of their drivers between 2000 and 2019. In line with the literature, our findings suggest that natural interest rates declined during this period, and despite a rebound in the last few years of it, they have not recovered to their pre-crisis levels. The paper also discusses the implications of the decline in natural interest rates for monetary conditions and debt sustainability.

Suggested Citation

  • Mr. Marco Arena & Gabriel Di Bella & Mr. Alfredo Cuevas & Mr. Borja Gracia & Vina Nguyen & Alex Pienkowski, 2020. "It is Only Natural: Europe’s Low Interest Rates," IMF Working Papers 2020/116, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2020/116
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    Citations

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    Cited by:

    1. Aleksandra Kolasa, 2022. "The long-term impact of quasi-universal transfers to older households," Working Papers 2022-28, Faculty of Economic Sciences, University of Warsaw.
    2. Agnello, Luca & Castro, Vítor & Sousa, Ricardo M., 2022. "On the international co-movement of natural interest rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    3. Maggi, Bernardo, 2023. "Eurosystem stability: A stochastic dynamic optimization approach to public debt," Socio-Economic Planning Sciences, Elsevier, vol. 90(C).

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