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The natural rate of interest in Switzerland

Author

Listed:
  • Matthias Burgert
  • Tobias Cwik
  • Joséphine Molleyres
  • Barbara Rudolf
  • Jörn Tenhofen

Abstract

Obtaining reliable estimates of the natural rate of interest, r*, and understanding its drivers is key for assessing long-run trends in real interest rates. In turn, this plays a role in assessing the stance of monetary policy. Against this backdrop, we discuss the evolution of real interest rates in Switzerland and present a portfolio of models used by the Swiss National Bank (SNB) to estimate r* as well as investigate its drivers. Moreover, we discuss the implications of the r* estimates for monetary policy. We find that, consistent with the evolution of real interest rates globally and in Switzerland, all model estimates point to a significant decline in r* since the mid-1980s. Also, r* is lower in Switzerland than abroad. Potential output growth as well as global factors related to the demand for and supply of safe and liquid assets (i.e., the convenience yield) and to demographics (as reflected in the discount factor) appear to be important drivers of the downward trend in r*. However, generally speaking, r* estimates are subject to sizeable model and statistical uncertainty. Concerning policy implications for Switzerland, we argue that while estimates of r* provide an important piece of information for monetary policy, other factors, such as the exchange rate, are also key determinants of monetary conditions for a small open economy such as Switzerland.

Suggested Citation

  • Matthias Burgert & Tobias Cwik & Joséphine Molleyres & Barbara Rudolf & Jörn Tenhofen, 2025. "The natural rate of interest in Switzerland," Economic Studies 2025-14, Swiss National Bank.
  • Handle: RePEc:snb:snbecs:2025-14
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    File URL: https://www.snb.ch/en/publications/research/economic-studies/2025/economic_studies_2025_14
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    More about this item

    Keywords

    Natural rate of interest; Demographics; Productivity growth; Monetary policy;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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