The Natural Rate of Interest: An Estimate for the United Kingdom

12 Pages Posted: 8 May 2020

See all articles by Anthony J. Evans

Anthony J. Evans

ESCP Europe; ESCP Europe - Department of Economics

Date Written: February 2020

Abstract

The natural rate of interest, also known as R*, is a central concept for many monetary economists. Although policymakers and commentators make judgements based on an implicit belief regarding its value, attempts to measure it are quite rare. This article uses productivity data to estimate the natural rate for the UK economy during 1998–2018. It finds that the median real natural rate up to and including 2008:2 was 2.11 per cent and has been 1.9 per cent since then. This supports the view that the natural rate can change over time and has fallen in recent years. Policymakers who use the natural rate as a benchmark should therefore monitor this more closely.

Keywords: Bank of England, central banks, monetary policy, natural rate

Suggested Citation

Evans, Anthony J., The Natural Rate of Interest: An Estimate for the United Kingdom (February 2020). Economic Affairs, Vol. 40, Issue 1, pp. 24-35, 2020, Available at SSRN: https://ssrn.com/abstract=3595550 or http://dx.doi.org/10.1111/ecaf.12385

Anthony J. Evans (Contact Author)

ESCP Europe ( email )

79 Avenue de la Republique
Paris, 75011
France

HOME PAGE: http://anthonyjevans.com

ESCP Europe - Department of Economics ( email )

United Kingdom

HOME PAGE: http://anthonyjevans.com

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