Latest / Monetary Policy Explained with Fexingo: Central Banks, Money Supply, and Interest Rates
Why Central Banks Care About the Neutral Rate
In this episode of Monetary Policy Explained, Lucas and Luna explore the concept of the neutral rate of interest — the 'Goldilocks' level that neither stimulates nor restrains the economy. Using the post-2022 hiking cycle as a backdrop, they explain how central banks estimate the neutral rate, why it has been drifting upward in the US, and what that means for the path of policy. They discuss the difference between the short-run neutral rate and the longer-run r-star, the role of productivity, demographics, and fiscal policy, and why even a small change in the neutral rate can shift…
The skinny
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