The Laubach-Williams (“LW”) and Holston-Laubach-Williams (“HLW”) models provide estimates of the natural rate of interest,
or r-star, and related variables. Their approach defines r-star as the real short-term interest rate expected to
prevail when an economy is at full strength and inflation is stable.
Holston-Laubach-Williams (2017) model extends this analysis to other advanced economies, estimating r-star and related variables for the United States, Canada, the Euro Area, and the United Kingdom. Link through the main navigation tabs above to a data visualization.
Holston, Laubach, and Williams. 2017. “Measuring the Natural Rate of Interest: International Trends and Determinants,”
Journal of International Economics
108, supplement 1 (May): S39–S75.
Working paper version:
“Measuring the Natural Rate of Interest: International Trends and Determinants”
R-star is the real interest rate expected to prevail when the economy is operating at its full sustainable
level, while the output gap measures the extent to which the economy is currently operating above or below this sustainable
level. Using the Laubach-Williams model, we calculate these estimates for the United States, along with estimates for trend growth—a source of change driving r-star.
Holston, Laubach, and Williams estimate the natural rate of interest, trend growth, and the output gap for four economies—the United States, Canada, the United Kingdom, and the Euro Area—using a version of the Laubach-Williams model. For each economy, the analysis employs data on real GDP, inflation, and a short-term interest rate to extract trends in economic growth and other factors influencing r-star.