The European Central Bank (ECB) and the U.S. Federal Reserve have justified their expansionary monetary policy by referring to the declining equilibrium real interest rate. In an op-ed in the magazine "Wirtschaftswoche", Volker Wieland argues that estimates of these equilibrium rates are extremely uncertain and sensitive to technical assumptions, and thus should not be used as key determinants of the policy stance. But if used nevertheless, a consistent application together with associated output estimates call for a tightening of the policy stance
Research by Volker Wieland and Henrike Michaelis of the Council of Economic Experts provides further insight in the shortcomings of monetary policy decisions based on the equilibrium interest rate.
The op-ed of Volker Wieland was published in the "Denkfabrik" column of "Wirtschaftswoche" (paid content).
