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It is Only Natural: Europe’s Low Interest Rates
Author:
Mr. Marco Arena
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Gabriel Di Bella null

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Mr. Alfredo Cuevas null

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Mr. Borja Gracia
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Vina Nguyen null

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Alex Pienkowski
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Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 116
Language:
English
Publication Date:
03 Jul 2020
DOI:
https://doi.org/10.5089/9781513549170.001
ISBN:
9781513549170
ISSN:
1018-5941
Pages:
59
Keywords:
WP; monetary policy; math display; fiscal policy; policy rate; country risk; risk premium; central bank; shadow rate; reserve currency; Real interest rates; Output gap; Global financial crisis of 2008-2009; Central bank policy rate; Europe; Global; Natural interest rate; Neutral interest rate; debt sustainability; Bayesian estimation; T-bill rate; market data; monetary policy stance
Legal-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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund