The Post-Pandemic r*

Baker, Katie; Casey, Logan; Del Negro, Marco; Gleich, Aidan; Nallamotu, Ramya

Discussion Paper

The Post-Pandemic r*

Abstract: The debate about the natural rate of interest, or r*, sometimes overlooks the point that there is an entire term structure of r* measures, with short-run estimates capturing current economic conditions and long-run estimates capturing more secular factors. The whole term structure of r* matters for policy: shorter run measures are relevant for gauging how restrictive or expansionary current policy is, while longer run measures are relevant when assessing terminal rates. This two-post series covers the evolution of both in the aftermath of the pandemic, with today’s post focusing especially on long-run measures and tomorrow’s post on short-run r*.

Keywords: r*; r-star; post-pandemic; Dynamic Stochastic General Equilibrium (DSGE) models;

JEL Classification: E4; E5;