4 bis - central bankers'speeches " normal " – in a more permanent manner? or should we expect the persistently low interest rates, observed post - 2008, to return and be our " new normal " again? this obviously depends on the natural rate of interest, or r * in short. the natural rate of interest is the real interest rate that supports the economy at maximum output and full employment while keeping inflation constant. it is the equilibrium rate and dividing line between expansionary and contractionary monetary policy. essentially, it is determined by structural factors, which, however, can be overturned at times by transitory economic shocks. this observation has two major policy implications. firstly, a structurally low r * does not rule out temporary episodes of high inflation. transitory shocks can generate persistent inflationary pressures, which – if not counteracted by monetary policy – entail the risk of high inflation through the feedback of expectations and wages. this underscores the importance of the ongoing monetary tightening and of the commitment to restore low and stable inflation. secondly, transitory high inflation and a structurally low r * can coexist. in other words, an episode of high inflation alone does not necessarily imply the reversal of low r * over longer horizons. even though it may be tempting to extrapolate the current situation to the future, we cannot assume that it automatically marks the end of the long - standing secular decline of the natural rate. so, whither r * – what should we think about it at this point? assessing its level is challenging as it is unobservable and can only be estimated. when thinking about whether the natural rate has remained low, we need to look at the factors which were believed to have caused the low level. factors typically viewed as important include demographic change, an increase in inequality and the slowdown in productivity growth. these demonstrate that the secular drivers of r * are inherently structural, which is why a major reversal in just a few years seems unlikely. we thus have reason to assume, at least as a baseline, that the natural rate will remain close to the pre - pandemic levels once the current inflationary pressures subside. this implies that the challenges for monetary policy, particularly from the effective lower bound, are likely to persist. this underlines the importance of strategic reviews conducted by central banks just before the inflationary shocks. this view on the natural rate is also shared more broadly, as reflected in the most recent imf world economic outlook

##alization and geoeconomic fragmentation, which would also be reflected in r *. another key challenge is high public debt. the long - term trajectory of r * is a crucial determinant of fiscal sustainability, while unsustainable public debt may raise the natural rate. in sum, current information suggests that the natural rate is likely to hover close to the pre - pandemic levels. this said, what is certain is that the ongoing secular shifts and the risk of new shocks leave the outlook for r * highly uncertain. in any case, policy makers need to form an opinion on r * and long - term real rates. how can this challenge be addressed? 3 / 4 bis - central bankers'speeches in my view, policy makers and researchers need to be guided by the following three principles : modesty, openness and flexibility. as to modesty, researchers should acknowledge the limitations and the uncertainty regarding both the underlying assumptions and the estimates of the natural rate. policymakers, in turn, may have to depart from the expectation of basing their decisions on the point estimates of r *. failing to acknowledge the high degree of uncertainty underlying r *, we risk ending up with false perceptions and policy biases. the second principle, openness, may help address these challenges. as the underlying drivers of r * appear too complex to be compressed into a single estimate, assigning a path for the natural rate by following a broad - based and data - based approach may be a more effective approach. for instance, we may want to explore new indicators, such as measures of innovation activity, to gain a timely view on tfp growth. a close and continuous dialogue between research and policy is crucial in this context. this conference provides an excellent example in this regard, as it features invited speeches and sessions that are highly policy relevant, covering key challenges for monetary policy and topical themes in e. g. fiscal policy, robotics, and wage inequality. when it comes to the third principle, flexibility will remain essential in forming views on the future of r *. most notably, flexibility is warranted to adjust our views on the natural rate over time, when new signals from its underlying forces emerge. to conclude, estimates of the natural rate of interest r * can, to some degree, serve as a point of orientation, if policymakers acknowledge that they are only summary statistics, which distil certain aspects of the data and are subject to the underlying assumptions and uncertainties. measures of the