Remarks by Mr Claudio Borio, Head of the Monetary and Economic Department, at the ECB Forum on Central Banking on "Monetary policy in an era of transformation", Sintra, 1-3 July 2024.
Is it useful, as is commonly done, to divine where real (inflation-adjusted) interest rates will go based on views about the evolution of the natural rate of interest, or r-star? This presentation argues that it is not, and that for much the same reasons r-star is not a helpful compass for monetary policy. In fact, a more useful starting point is to focus on who sets real interest rates at all points in time – the central bank – and what it responds to. Monetary policy may well hold the key. R-star, like beauty, is in the eye of the beholder.
The views expressed here are my own and not necessarily those of the BIS or its member institutions.
