One of the many current mysteries in monetary policy is what interest rate, in the long run, helps keep the U.S. at full employment and stable prices, which is sometimes called the natural rate of interest. Federal Reserve policymakers have marked down their estimates in recent years, suggesting that they expect interest rates to be lower than the post-World War II average for some time to come. The International Monetary Fund also has noted a downward trend in interest rates. And some observers see chronically low equilibrium interest rates as a worrisome symptom of ‘secular stagnation.’
The Hutchins Center on Fiscal and Monetary Policy at Brookings and the University of Chicago Booth School’s Initiative on Global Markets offered two takes on these questions. James Hamilton (UCSD), Ethan Harris (Bank of America Merrill Lynch), Jan Hatzius (Goldman Sachs) and Kenneth West (University of Wisconsin) argued that uncertainty around the equilibrium interest rate is large but challenged the view that the level has fallen permanently or that it is tied to the long-run rate of economic growth; they also drew implications for Fed policies. John Williams of the Federal Reserve Bank of San Francisco and Thomas Laubach of the Federal Reserve Board revisited their 2001 paper that found a close link between the natural rate of interest and the economy’s trend growth rate. Anna Cieslak (Duke University) and Maurice Obstfeld (University of California, Berkeley) responded.
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Agenda
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October 30
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Introduction
David Wessel Director - The Hutchins Center on Fiscal and Monetary Policy, Senior Fellow - Economic Studies @davidmwessel -
The Equilibrium Real Funds Rate: Past, Present and Future
James Hamilton Professor of Economics - University of California, San DiegoEthan Harris Co-head of Global Economics Research - Bank of America Merrill Lynch Global ResearchJan Hatzius Goldman SachsKenneth West John D. MacArthur and Ragnar Frisch Professor of Economics - University of Wisconsin -
Measuring the Natural Rate of Interest
John C. Williams President and CEO - Federal Reserve Bank of San FranciscoThomas Laubach Director, Monetary Affairs - Federal Reserve Board -
Response
David Wessel Director - The Hutchins Center on Fiscal and Monetary Policy, Senior Fellow - Economic Studies @davidmwesselMaurice Obstfeld Senior Fellow - Peterson Institute for International Economics, Professor of Economics Emeritus - University of California, Berkeley -
Panel Discussion
David Wessel Director - The Hutchins Center on Fiscal and Monetary Policy, Senior Fellow - Economic Studies @davidmwesselJan Hatzius Goldman SachsThomas Laubach Director, Monetary Affairs - Federal Reserve BoardMaurice Obstfeld Senior Fellow - Peterson Institute for International Economics, Professor of Economics Emeritus - University of California, BerkeleyAnil Kashyap Stevens Distinguished Service Professor of Economics and Finance - Booth School of Business, University of Chicago -
Response
Louise Sheiner The Robert S. Kerr Senior Fellow - Economic Studies, Policy Director - The Hutchins Center on Fiscal and Monetary Policy @lsheinerAnna Cieslak Associate Professor of Finance - Duke University, Fuqua School of Business
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