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Article: The neutral real interest rate.
- Article from:
- Economic Bulletin
- Article date:
- June 1, 2007
- Author:
CopyrightCOPYRIGHT 2007 Norges Bank. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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The concept "neutral real interest rate" is generally associated with the real interest rate level, which implies that monetary policy is neither expansionary nor contractionary. We define the neutral real interest rate as the real interest rate level which in the medium term is consistent with a closed output gap. We consider in more detail how the neutral real interest rate in a small, open economy is influenced by global conditions. The neutral real interest rate cannot be observed, and estimates are uncertain. Different methods for estimating the neutral real interest rate are presented in this article. An overall assessment implies that it will normally lie in the ...