is the nature of good intellectual debate and how we advance our understanding of the world around us. one vital fact about r * is that it is a theoretical concept without any reliable and straightforward way to determine its value. there are economic models that are used to estimate the value of r * and also surveys of market participants or policymakers such as the fomc ’ s summary of economic projections. but r * is not a precise number, unlike the unemployment rate, which can be measured directly. for these reasons, all of the model and survey estimates come with large degrees of uncertainty. 2 that ’ s why we always need to be humble in citing a numerical value for r *. one thing that is evident from these different estimates, and additionally clear based on the performance of the economy at different policy settings over the past couple of decades, is that the value of r * changes over time. 3 the change is slow moving, and i tend to think of it as related to the movement in factors that we can see affecting the economy over time. though hard to precisely measure, having some understanding of the current level of r * is a matter of obvious importance for monetary policy, so i will focus today on factors that have contributed to the apparent decline in r * over the past several decades and look at how they may influence its value going forward. estimates from econometric models, whether using macroeconomic data, financial market data, or both, typically exhibit large uncertainty bands for any given study. and even these estimates are sensitive to model specification, sample period, data revisions, and more. approaches that emphasize the underlying determinants of r * also have difficulty in identifying shifts in r * because the important movements in these factors typically occur only at very low frequencies. information from surveys ( at least partially ) reflects the estimates from all of these approaches and so cannot speak definitively to movements in r *. one can see the movement in estimates of r * from the models of laubach - williams and holstonlaubach - williams reported on the federal reserve bank of new york ’ s website at https : / / www. newyorkfed. org / research / policy / rstar. - 3to get some indication of how r * has evolved over time, it is helpful to look at the real, or inflation - adjusted, yield of the 10 - year treasury security, the most widely held safe and liquid asset. let me pause here and explain why this is a good real -

a wedge between these two rates of return, causing the real 10 - year yield to decline but the return on capital to be relatively constant? and what does this say about r *? let me start by discussing what is not responsible for this difference in yields. 7 first, it cannot be caused by longer - run trends in productivity. trend productivity affects the real return on capital first and foremost. so even if trend productivity growth was falling over time, both rates of return would have fallen. but, clearly, the real return to capital has not fallen over time. so falling productivity growth cannot be an explanation. second, this difference in yields cannot be the result of declining population growth. again, this would also lower the real return to capital since there are fewer workers to use productive capital, which means the existing capital stock is underutilized, thereby lowering its real return. so, what drove the decline of the real return on government debt? it is obvious that what makes u. s. government debt different from the real return on capital and other interest rates is its safety and global liquidity. i will briefly discuss several factors that see alexander monge - naranjo, juan m. sanchez, and raul santaeulalia - llopis ( 2019 ), “ natural resources and global misallocation, ” american economic journal : macroeconomics, vol. 11 ( april ), pp. 79 – 126. for further review of how different factors are at play, see ricardo j. caballero, emmanuel farhi, and pierre - olivier gourinchas ( 2017 ), “ rents, technical change, and risk premia accounting for secular trends in interest rates, returns on capital, earning yields, and factor shares, ” american economic review, vol. 107 ( may ). - 6have influenced the supply and demand for safe, liquid assets. i will try to make the case that the demand for safe, liquid assets outgrew the supply over the past 40 years, which drove a secular increase in the price of u. s. treasury securities and, thus, a secular decline in their real yield. at the same time, the safety and liquidity of u. s. treasury securities was actually increasing, which made them even more attractive to global investors. to be clear, i am not focusing on day - to - day movements in interest rates from idiosyncratic events that will ultimately unwind. instead, i am thinking about factors that have