The Worldwide R* in the Aftermath of the Pandemic

Examining Global r* Trends

This article explores an estimate of the worldwide natural rate of interest, or r*, by analyzing short- and long-term interest rates and inflation data from multiple nations. The methodology follows the framework outlined in “Global Trends in Interest Rates” by Del Negro, Giannone, Giannoni, and Tambalotti. Findings reveal that, although global r* experienced a notable drop from the 1990s up until just before the COVID-19 outbreak, it has since increased but still sits well below its levels prior to the 1990s.

These insights are derived from an econometric technique known as the “trendy VAR,” which identifies shared patterns among a wide range of economic indicators. In particular, the analysis focuses on the collective movement in real interest rates across the countries studied, which is referred to as the global r*.