Neutral interest rate likely to rise, paper finds

Several factors are pushing rate upwards, Bank of Canada researchers say

Bank of Canada's head office in Ottawa
Bank of Canada/Flickr

There is a meaningful risk that the neutral interest rate will experience upward pressure, researchers from the Bank of Canada say.

The paper was written by Matteo Cacciatore, Bruno Feunou and Galip Kemal Ozhan.

The researchers say that the neutral interest rate, or R*, serves central banks more as a tool for communications than policy.

“Estimation uncertainty implies that R* has limitations as a guidepost for monetary policy,” they warn. But the authors argue that by communicating R*, central

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