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Mr. Fei Han, Mr. Paul Cashin, Ulric Eriksson, and von Allmen

extent of monetary stimulus depends on the interest rate gap—defined as the gap between the real interest rate and the natural rate of interest . The real interest rate (more precisely, the ex ante real interest rate) is calculated by subtracting expected inflation from the nominal interest rate. The natural rate of interest is defined as the real interest rate consistent with output equaling its potential level and constant inflation ( Laubach and Williams, 2003 ). The natural rate of interest therefore provides a benchmark for measuring the stance of monetary