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Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Olaf Storbeck on 14 February 2025
19 February 2025
How relevant is the natural rate – R* – for day-to-day policymaking from your point of view?
The natural rate of interest is an important theoretical concept. But it’s not well-suited to determine the appropriate monetary policy stance. The ECB staff analysis that was published recently had one main message: we know that we know very little. Model and estimation uncertainty result in confidence bands that are so wide that they include any reasonable interest rate that the ECB may set at this point. Moreover, R* is a steady-state concept for a world without shocks. That’s certainly not the world that we are in today. Just look at what’s happening with the evolving trade conflict on which we are getting news on a daily basis. So for all those reasons, I think R* cannot be any reliable guide for monetary policy in real time.
Has your view on…