## It is Only Natural: Europe’s Low Interest Rates

_IMF Working Papers, July 3, 2020_

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## Bibliographic details
- Authors: Marco Arena, Gabriel Di Bella, Alfredo Cuevas, Borja Gracia, Vina Nguyen, Alex Pienkowski
- Published: July 3, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513549170.001

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### Overview and scope
- Authors: Marco Arena, Gabriel Di Bella, Alfredo Cuevas, Borja Gracia, Vina Nguyen, Alex Pienkowski
- Publication date: July 3, 2020
- Sample and period: a sample of European countries (including several members of the Euro Area), 2000–2019
- Pages: 59
- Series: Working Paper No. 2020/116; Volume: 2020; Issue: 116
- DOI: https://doi.org/10.5089/9781513549170.001
- ISBN: 9781513549170
- ISSN: 1018-5941

### Key findings on natural interest rates
- Estimates of country-specific natural interest rates and some of their drivers are provided for 2000–2019.
- Natural interest rates declined during 2000–2019.
- There was a rebound in the last few years of the sample period, but natural interest rates "have not recovered to their pre-crisis levels."

### Methods and technical approach
- The study produces country-specific estimates (European sample, including several Euro Area members).
- Keywords and methodological indicators in the study: Bayesian estimation, market data, shadow rate, T-bill rate, risk premium, country risk.

### Macroeconomic themes and policy-relevant topics addressed
- Central bank policy rate
- Monetary policy and monetary policy stance
- Output gap and production
- Real interest rates and Neutral/Natural interest rate concepts
- Debt sustainability and fiscal policy implications
- Financial crises and the Global financial crisis of 2008-2009
- Reserve currency considerations and market risk factors

### Implications and interpretation
- The decline in natural interest rates has implications for:
  - Monetary conditions: lower natural rates affect the neutral policy rate benchmark and the timing and scope for monetary policy normalization.
  - Debt sustainability: lower natural rates influence debt dynamics and fiscal policy space.
- The persistence of natural rates below pre-crisis levels, despite a partial rebound, suggests ongoing constraints on normalizing policy rates to earlier historical norms.

### Subject tags (as presented)
- Central bank policy rate, Financial crises, Financial services, Global financial crisis of 2008-2009, Output gap, Production, Real interest rates

*IMF Working Paper: "It is Only Natural: Europe’s Low Interest Rates", Working Paper No. 2020/116, July 3, 2020.*

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_Source: https://www.imf.org/en/publications/wp/issues/2020/07/03/it-is-only-natural-europes-low-interest-rates-49525_