Real Equilibrium Interest Rates in the Euro Area

IMF Working Papers, June 20, 2025

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Real Equilibrium Interest Rates in the Euro Area

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Bibliographic details

• Authors: Robert C. M. Beyer, Luis Brandao Marques
• Published: June 20, 2025
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9798229013086.001

Overview and scope

• Title: Real Equilibrium Interest Rates in the Euro Area
• Authors: Robert C. M. Beyer, Luis Brandão-Marques
• Publication type: IMF Working Papers
• Date: June 20, 2025
• Pages: 33
• Volume: 2025
• Issue: 123
• Series: Working Paper No. 2025/123
• DOI: https://doi.org/10.5089/9798229013086.001
• Stock No: WPIEA2025123
• ISBN: 9798229013086
• ISSN: 1018-5941

Key findings

• Updated estimates of real equilibrium interest rates in the euro area are produced using eight prominent methodologies from the academic literature.
• The methodologies deliver a wide range of estimates, reflecting differences in time horizon and economic complexity.
• By the end of 2024:
  • Shorter-term equilibrium rates mostly exceeded longer-term rates.
  • Foreign spillovers contributed positively to euro area equilibrium rates.
• Estimated alignment of policy:
  • ECB policy rates are broadly aligned with short-run efficient rates.
  • Monetary policy is suggested to have remained restrictive at the end of 2024.

Methodological notes

• Eight prominent methodologies from academic literature are used; they vary in:
  • Time horizon.
  • Economic complexity.
• High uncertainty and a wide range of estimates imply model uncertainty that must be explicitly addressed when drawing conclusions.

Evaluation criteria for judgment-based assessment

• A judgment-based assessment of equilibrium rate estimates should be based on three criteria:
  • Conceptual fit.
  • Robustness.
  • Alignment with other economic indicators.

Policy implications and recommendations

• Because of wide-ranging estimates and model uncertainty:
  • Formulate robust conclusions and policy recommendations that account for model uncertainty.
• Current policy assessment:
  • ECB policy rates broadly match short-run efficient rates.
  • Monetary stance was restrictive at end-2024.

Subject classifications and keywords

• Subjects: Central bank policy rate, Dynamic stochastic general equilibrium models, Econometric analysis, Financial services, Inflation, Interest rate floor, Monetary policy, Prices, Real interest rates
• Keywords: Central bank policy rate, Dynamic stochastic general equilibrium models, ECB policy rate, Equilibrium Interest Rates, equilibrium rate, Euro Area, Foreign Spillovers, Global, Inflation, Interest rate floor, longer-term rate, Monetary Stance, open-economy model, Real interest rates

Source: IMF Working Paper — "Real Equilibrium Interest Rates in the Euro Area" (Working Paper No. 2025/123), Robert C. M. Beyer and Luis Brandão-Marques, June 20, 2025; DOI: https://doi.org/10.5089/9798229013086.001

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