R-star wars: the phantom menace

The natural real rate of interest has been on a declining path for the past 30 years. I present a regime-switching analysis of the natural rate, which suggests that the current low levels are likely to persist in the near future. I identify a high global demand for safe assets as the most important factor in keeping the natural rate low. I conclude that the current low levels of the policy rate are generally appropriate, with some upside risk, and that forward guidance should be characterized by a flat policy rate path.