An IMF Economist On The Challenge Of Finding The Neutral Rate Of Interest
Odd Lots
Bloomberg
4.5 • 2K Ratings
🗓️ 5 October 2020
⏱️ 53 minutes
🧾️ Download transcript
Summary
One of the guiding lights of Fed policy over the years has been the so-called Neutral Rate of Interest or R*. It's at this rate, theoretically, where the economy comes into balance, with full employment and stable prices. Yet, not only has discovering that level become challenging, but the premise itself has been called into question. On this episode, we speak with Peter Williams, an analyst and economist at the IMF, on what it takes to find the right level, and how the concept itself can be salvaged.
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| 0:40.9 | context. Hello and welcome to another episode of the Odd Thoughts Podcast. I'm Tracy Allaway and I'm Joe Wiesenthal |
| 1:00.0 | Joe you know what question we keep asking lately, especially? |
| 1:05.0 | Probably something about, you know, monetary policy and fiscal policy of the zero lower |
| 1:11.0 | bound or whether it all works anymore and whether we have to rethink literally everything everyone has thought for decades. |
| 1:17.9 | Yeah, I think that's right, but I was thinking more specifically we keep asking policymakers if they actually |
| 1:25.7 | understand inflation and I think that's something we asked Neil Keshkari very |
| 1:30.6 | recently and we asked a Vittor Constancio before that and I'm not entirely convinced that we do understand inflation like clearly the fact that we have been missing the target for many many years suggests that there is something that we are missing. |
| 1:46.2 | I mean it really is one of the sort of most profound questions and it was we've chatted several weeks ago with the ECB vice president, |
| 1:55.3 | our former ECB vice president Vittor Kostasio and you know it's like here's |
| 2:00.3 | someone high up in a central bank the central bank's mandate is to either target or |
| 2:05.3 | control inflation and yet there is a lot of doubt whether anyone actually has a sort of robust theory of what causes it. |
| 2:15.0 | And that's like a pretty profound thing given how much, |
| 2:19.8 | given how much is weighing on this measure or this concept? |
| 2:25.0 | Yeah, absolutely. |
| 2:26.4 | And I gotta say, the way policy makers think about inflation, |
| 2:31.0 | there are a couple things or factors that come up a lot in their intellectual |
| 2:37.8 | framework for thinking about this and that is or R is our it's our star sorry I'm not making any sense but those things are |
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