How does COVID-19 affect r*?

Economic Memo – December 2020 – No. 14

Authors Adolfsen, Jakob; Pedersen, Jesper; Rasmussen, Thea Thalia Iuel
Subject Monetary policy; Monetary-policy transmission; Rates and foreign-exchange
Type Economic Memo
Year 2020
Published 3 December 2020
This memo discusses effects of COVID-19 on interest rates through the lens of global movements in the natural real interest rate. While government spending and public debt issuance are likely to cause a rise in r*, r* may decline due to precautionary behaviour. The net effect is uncertain.