speech measuring the natural rate of interest : past, present, and future may 19, 2023 john c. williams, president and chief executive officer remarks at the thomas laubach research conference, board of governors of the federal reserve system, washington, dc as prepared for delivery thank you, trevor. and good morning, everyone. it is a special privilege to participate in this conference honoring my dear friend, colleague, and co - author, thomas laubach. many of you knew thomas personally, and all of you knew him through his work. he was a brilliant economist, trusted colleague, and an inspiring leader. we miss thomas'dedication, good cheer, and sense of humor, and his impact on everyone he touched endures. our collaboration started in the fall of 2000 with a shared interest in figuring out how to measure the elusive natural rate of interest, otherwise known as r - star. at the time, neither of us had any idea that our research on this topic would continue for 20 years. kathryn holston and i are carrying on this work. it's one of the many ways we can honor thomas and his memory. because of the unprecedented, pandemic - related shocks to the economy, we paused our regular publication of r - star estimates in late 2020. this conference is the perfect venue to announce that we are resuming them. but first, i want to take some time to share r - star's origin story, which is how i came to know thomas. before i go any further, i need to give the standard fed disclaimer that the views i express today are mine alone and do not necessarily reflect those of the federal open market committee ( fomc ) or others in the federal reserve system. questioning the assumption the idea of a natural rate of interest has been around ever since the swedish economist knut wicksell wrote about it in 1898. early on, it was recognized that it's not something that can be directly observed or measured. as the economist john h. williams wrote in 1931 : " the natural rate is an abstraction ; like faith, it is seen by its works. one can only say that if the bank policy succeeds in stabilizing prices, the bank rate must have been brought in line with the natural rate, but if it does not, it must not have been. " 1 the topic gained renewed relevance in 1993, following john taylor's famous description of a monetary policy rule that incorporated an assumption of a natural rate

slightly below zero. evidently, the value of r - star implied by private forecasts is, if anything, even lower than today's estimate. time will tell whether this turns out to be the case. no one right answer let me conclude by sharing something i learned from thomas and hold dear. it's actually hidden in the last line of the abstract from our first published paper. it says : " estimates of the natural rate of interest, however, are very imprecise and subject to realtime measurement error. " 14 to some, that may sound like a negative statement. but it's also what makes empirical research so exciting and challenging. there is no one right answer and no single way to view the world. empirical research is a process of continuous learning and adaptation — fueled by perseverance. people come up with different approaches, and we learn from all of them. so, while we started with the problem of how to estimate r - star, it didn't end with that first board memo. rather, it opened the door to new questions, which led to further challenges and even more research. this is the legacy of thomas laubach, and it's what brings us all together today. figures 1 john h. williams. " the monetary doctrines of j. m. keynes, " the quarterly journal of economics 45, no. 4 ( august 1931 ) : 547 – 587. 2 john b. taylor. " discretion versus policy rules in practice, " carnegie - rochester conference series on public policy, vol. 39 ( december 1993 ), pp. 195 – 214. 3 athanasios orphanides discovered that quote after we were already working on r - star. 4 thomas laubach and john c. williams. estimates of a time - varying equilibrium real federal funds rate. memo to the board of governors of the federal reserve system, december 14, 2000. 5 the first instance was the may 2001 bluebook. 6 thomas laubach and john c. williams. measuring the natural rate of interest. board of governors of the federal reserve system, finance and economics discussion paper number 2001 - 56. november 2001. 7 thomas laubach and john c. williams. " measuring the natural rate of interest, " review of economics and statistics 85, no. 4 ( november 2003 ) : 1063 - 70. 8 thomas laubach and john c. williams, " measuring the natural rate of interest redux, " business economics 51, no. 2