Robert Holzmann: Raising r* - Why, how, and if not now, when?

Opening remarks by Dr Robert Holzmann, Governor of the Oesterreichische Nationalbank, the Austrian central bank, at the SUERF-OeNB-Baffi Bocconi Workshop, Vienna, 15 September 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Ladies and gentlemen, Let me warmly welcome you to this workshop on "How to raise r*". It is a great pleasure to see that SUERF, Baffi Bocconi University and the OeNB have joined forces in bringing together such a fabulous group of experts to discuss this important and urgent topic!

Falling r*: Why a problem? How much do we really know?

The unobservable equilibrium real interest rate, called in central bank circles and academia r*, has been in decline across advanced economies over the last 30 plus years.1 The decline is typically linked to declining productivity, population aging and an overhand of savings over investment. The fall in the estimated r* towards or below zero, together with very low inflation rates across much of the developed world, has brought policy rates close to the effective lower bound. Beyond that, it has led to the introduction of unconventional monetary policy measures. The use of these instruments was heavily accentuated with the economic fall-out of the Covid crisis.