Anna Seim: Neutral interest rate – meaning, limitations and assessment
Speech by Ms Anna Seim, Deputy Governor of the Sveriges Riksbank, at a seminar on "Neutral interest rate – meaning, limitations and assessment", organised by the Sveriges Riksbank, Stockholm, 26 November 2024.
Presentation accompanying the speech
It is now just over six months since I joined the Executive Board of the Riksbank. It was with great humility that I made the move from academia to practical economic policy-making. One factor that greatly facilitated the transition was that the principles of how best to design monetary policy are strongly anchored in research.
Today's seminar will focus on a theoretical concept that is firmly rooted in research but also has great practical significance − the neutral interest rate. The neutral interest rate is a concept I have of course considered in my previous role as a researcher, for example when I, together with Lars Calmfors and John Hassler, wrote an ESO report on the interaction between fiscal and monetary policy a couple of years ago.1 We then developed measures of whether economic policy had been countercyclical, i.e. contractionary in an upturn and stimulative in a downturn. At that time, estimates of the neutral interest rate were necessary as a reference point. But never before have I had so much reason to ponder the importance of the neutral interest rate as in recent months.
I will start by discussing the concept of the neutral interest rate, how it relates to other similar concepts, what factors influence it, why it is important for a central bank and what its limitations are as a benchmark for practical monetary policy. I will conclude by presenting the Riksbank's updated assessment of the neutral interest rate.