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Discussion Paper
Comparing Apples to Apples: “Synthetic Real‑Time” Estimates of R‑Star
Estimates of the natural rate of interest, commonly called “r-star,” garner a great deal of attention among economists, central bankers, and financial market participants. The natural interest rate is the real (inflation-adjusted) interest rate expected to prevail when supply and demand in the economy are in balance and inflation is stable. The natural rate cannot be measured directly but must be inferred from other data. When assessing estimates of r-star, it is important to distinguish between real-time estimates and retrospective estimates. Real-time estimates answer the question: ...
Journal Article
The Zero Lower Bound Remains a Medium-Term Risk
Financial markets—specifically derivatives—contain information about the range of probable future short-term interest rates. The information from this statistical distribution can help measure the perceived risk of interest rates returning to the zero lower bound in the future. The risk varies over time, driven mainly by the expected level of interest rates. At longer forecast horizons, a higher risk of returning to the lower bound primarily reflects a higher amount of uncertainty. Currently, the perceived risk appears slim over the next few years but is significant at longer horizons.
Discussion Paper
The Zero Lower Bound Remains a Medium‑Term Risk
Interest rates have fluctuated significantly over time. After a period of high inflation in the late 1970s and early 1980s, interest rates entered a decline that lasted for nearly four decades. The federal funds rate—the primary tool for monetary policy in the United States—followed this trend, while also varying with cycles of economic recessions and expansions.