It is Only Natural: Europe’s Low Interest Rates

By Marco Arena, Gabriel Di Bella, Alfredo Cuevas, Borja Gracia, Vina Nguyen, Alex Pienkowski

July 3, 2020

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Format: Chicago

Marco Arena, Gabriel Di Bella, Alfredo Cuevas, Borja Gracia, Vina Nguyen, and Alex Pienkowski. It is Only Natural: Europe’s Low Interest Rates, (USA: International Monetary Fund, 2020) accessed September 19, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Central bank policy rate, Financial crises, Financial services, Global financial crisis of 2008-2009, Output gap, Production, Real interest rates

Keywords: Bayesian estimation, Central bank, Central bank policy rate, Country risk, Debt sustainability, Europe, Fiscal policy, Global, Global financial crisis of 2008-2009, Market data, Math display, Monetary policy, Monetary policy stance, Natural interest rate, Neutral interest rate, Output gap, Policy rate, Real interest rates, Reserve currency, Risk premium, Shadow rate, T-bill rate, WP

Publication Details

Pages:

59
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/116
Stock No:

WPIEA2020116
ISBN:

9781513549170
ISSN:

1018-5941

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