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Lawler: Is The “Natural” Rate of Interest Back to Pre-Financial Crisis Levels?


Today, in the Calculated Risk Real Estate Newsletter: Lawler: Is The “Natural” Rate of Interest Back to Pre-Financial Crisis Levels?

A brief excerpt: Here is a graph showing the HLW and LM estimates of r-star from 1990 through the first quarter of 2023.

Note that both of these estimates show a sharp decline in r-star right around the same time as the beginning of the financial crisis that led to the worst recession since the Great Depression.  For folks who didn’t live through this period, it was a period of great fear, and there were serious concerns that the financial system might collapse.  There were unprecedented actions taken by the government, but fear remained at elevated levels for years.  These fears were not just limited to the US:  in Europe multiple countries either faced banking crises, sovereign debt crises, or both and there were unprecedented actions taken by governments/central banks but fear remained for many years as well.  And it was during those “fear years” that estimated levels of r-star remained at extremely low levels.  Discrete changes like those observed were not related to longer-term trends such as demographics.

Note that in the last several years of last decade r-star estimates had begun to move gradually higher from the incredibly low levels (more so in the LM model than the HLW model) as fear began to recede, but then the pandemic hit, bringing more fear and uncertainty, though fortunately for a much shorter period than during the Great Recession/financial crisis/sovereign debt crisis.There is much more in the article. You can subscribe at

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