NEW YORK—The Federal Reserve Bank of New York today announced that it has resumed regular publication of estimates of the natural rate of interest, or r-star, and related variables.
Owing to the extraordinary volatility in GDP related to the COVID-19 pandemic, the New York Fed suspended posting of regular updates of the Laubach-Williams (LW) and Holston-Laubach-Williams (HLW) model estimates on November 30, 2020. As of today, these models have been updated through the fourth quarter of 2022. Estimates for the first quarter of 2023 of the LW and HLW models will be released May 26 and June 1, respectively.
In remarks at the Thomas Laubach Research Conference in Washington, D.C., New York Fed president and chief executive officer John C. Williams said that “according to the model estimates, the main longer-term consequence from the pandemic period is a reduction in potential output, but the imprint on r-star appears to be relatively modest. Importantly, there is no evidence that the era of very low natural rates of interest has ended.”
The full text of his remarks, “Measuring the Natural Rate of Interest: Past, Present, and Future,” is available on the New York Fed’s website.
The Laubach-Williams (2003) model uses data on real GDP, inflation, and the federal funds rate to extract trends in U.S. economic growth and other factors influencing the natural rate of interest. The Holston-Laubach-Williams (2017) model extends this analysis to other advanced economies, estimating r-star and related variables for the United States, Canada, and the Euro Area. These models define r-star as the real short-term interest rate expected to prevail when an economy is at full strength and inflation is stable.
Concurrent with the relaunch of publication, the New York Fed published a note regarding the new LW and HLW models, titled “Measuring the Natural Rate of Interest After COVID-19.”
For more information and resources related to r-star, visit Measuring the Natural Rate of Interest on the New York Fed’s website.