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2020 US Neutral Rate Assessment

1 Dec 2020

'This paper presents Bank of Canada staff's current assessment of the US neutral rate, along with a newly developed set of models on which that assessment is based. The overall assessment is that the US neutral rate currently lies in a range of 1.75 to 2.75 percent. This represents a decline of 50 basis points relative to the range judged at the time of the Bank's last neutral rate update in April 2019. Roughly half of this decline reflects an assessment of conditions prevailing in late 2019 and is thus unrelated to the COVID-19 pandemic. The other half reflects the balance of several key channels through which the COVID-19 shock is likely to influence US interest rates over the years ahead, including its impacts on potential output growth, inequality, demand for safe assets and the level of US government debt. Results from the new models specifically point to upward pressure from higher government debt being more than offset by downward pressure from lower potential output growth, higher inequality and heightened demand for safe assets'--Abstract, page ii.
growth economics economy finance recession interest rate inflation gross domestic product science and technology debt economic growth recessions labour labour economics macroeconomics earnings government debt downturn skill-biased technological change macroeconomic economic inequality aggregate demand baseline credit and debt neoclassical economics
ISSN
19140568
Pages
12
Published in
Ottawa, ON, CA

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