Faculty of Economics and Business Administration Publications Database

R-Star and the Draghi rules: Correctly measuring the equilibrium interest rate for policy use

Michaelis, Henrike

In recent speeches, Federal Reserve Chair Janet Yellen and ECB President Mario Draghi have attributed the Fed’s and the ECB’s low interest rate environment to low equilibrium rates rather than to Fed or ECB policies. This column argues that estimates of these equilibrium rates are extremely uncertain and sensitive to technical assumptions, and thus should not be used as key determinants of the policy stance. But if used nevertheless, a consistent application together with associated output estimates call for a tightening of the policy stance.

Year: 2017
Editor: VoxEU