How Central Banks Use the Natural Rate of Interest

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How Central Banks Use the Natural Rate of Interest

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In Episode 79 of Monetary Policy Explained with Fexingo, Lucas and Luna dive into the natural rate of interest — also known as R-star — the theoretical neutral rate that neither stimulates nor restricts the economy. They unpack why central banks like the Fed, ECB, and Bank of Japan obsess over this elusive number, how it guides monetary policy decisions, and why it seems to be declining across developed economies. Using real-world examples from the post-2008 era and the current tightening cycle in 2026, they explain how estimates of R-star influence everything from interest rate decisions to quantitative easing programs. The hosts also discuss the practical challenges of measuring a rate that can't be directly observed, and why recent research suggests R-star may be even lower than previously thought. Packed with specific data points and clear explanations, this episode helps listeners understand one of the most important — and least understood — concepts in modern central banking. #NaturalRateOfInterest #RStar #MonetaryPolicy #CentralBanks #FederalReserve #ECB #BankOfJapan #NeutralRate #InterestRates #Macroeconomics #LucasAndLuna #FexingoBusiness #BusinessPodcast #EconomicsExplained #PolicyTool #RealInterestRate #PotentialGrowth #LaubachWilliams Keep every episode free: buymeacoffee.com/fexingo

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