the natural rate of interest. the stakes have become even higher in recent years when central banks try to estimate the natural rate of interest. as seen in the debate on the secular stagnation hypothesis proposed by professor lawrence summers of harvard university, uncertainty regarding the natural rate of interest makes it much more difficult for central banks to steer a clear course in terms of policy decisions. 3 while i am not going into the details of his hypothesis, many of us can agree that the natural rate of interest has declined in recent years and because of this decline, combined with the effective lower bound on nominal interest rates, many central banks in advanced economies developed new unconventional monetary policy tools and have embarked on carefully crafted but bold actions. in this regard, i would argue that we still face old challenges. c. heterogeneous agent macroeconomics and distributional effects of monetary policy the third issue is related to monetary policy and inequality. the order i picked the topics does not necessarily correspond to their importance ; it is simply that the first two topics are closely related to the real interest rate, while the third topic deals with a very different issue. as a caveat, i would like to clearly state that monetary policy is by no means a policy tool for distributional purposes. with this proviso in mind, let me borrow a phrase delivered by u. s. fed chair janet yellen : she said, “ it is important for policymakers to understand and monitor the effects of macroeconomic developments on different groups within society, ” and i completely agree with her on this point. 4 in the aftermath of the global financial crisis, a number of pundits argued that macroeconomics and monetary economics are totally useless. one of the misconceptions of such critics is that they believe that modern macroeconomics relies only on representative agent models and ignores important implications arising from various heterogeneities in the economy, such as debtors and creditors, the financial sector and the non - financial sector, importers and exporters, and more controversially, haves and have - nots. heterogeneous agent models were developed in the 1990s, and have been extended since then. 5 from the viewpoint of policymakers, the true issue is whether to employ heterogeneous agent models, instead of handier representative agent models, to examine the implications of heterogeneity for macroeconomic fluctuations. this is a classic case in which occam ’ s razor with regard to the

included an analytical framework developed by mr. jeffrey fuhrer from the boston fed, one of today ’ s paper presenters, to assess inflation dynamics with a special focus on the role of survey - based expectations. 2 i am sure that we have learned a lot about inflation expectations in the past few years, but there still remain many research questions on this issue yet to be addressed. for example, there seems to be a consensus that inflation expectations exhibit a certain degree of inertia or persistence, which is difficult to be explained in a full information rational expectations ( fire ) framework even with the classic assumption of nominal ( price ) rigidity. however, little consensus has been formed regarding the micro - foundations for such seemingly persistent inflation expectations dynamics. against this backdrop, recent studies have increasingly focused on information rigidity, and i would like to encourage researchers to move on further along with this research agenda. 1 / 3 bis central bankers'speeches b. the natural rate of interest the second item on our research agenda is an old and new topic, that is, the natural rate of interest, or, in slightly more technical parlance, the equilibrium real interest rate. the natural rate of interest has long been discussed in macroeconomics and related time series analyses. if we say “ our monetary policy stance remains accommodative, ” this means that actual real interest rates are kept at a level below the equilibrium real interest rate. this quite naturally gives rise to the question that how we can know the level of the equilibrium real interest rate. this question is more difficult than it appears. the natural rate of interest would have a clear interpretation in a solid dynamic general equilibrium model. nevertheless, the determinants of the natural rate of interest vary, depending on how the model is specified. it is well known that, in some specific cases, the natural rate of interest coincides with the potential growth rate of the economy, but this is not always the case. further, when trying to estimate the natural rate of interest, econometricians face a long list of technical challenges. for example, data on the riskfree interest rate with a fixed maturity are not readily available, since there is no absolutely “ riskfree ” asset in actual financial markets. also, consumers ’ time preferences are hard to estimate, and, moreover, whose time preference we should estimate still remains an unresolved question. with the difficulties just mentioned in mind, central bankers have long made careful policy decisions using some kinds of estimates of