Abstract
The natural rate of interest plays a key role in Wicksell's ‘cumulative process’ as well as in modern monetary equilibrium models of the business cycle. It constitutes a useful concept for the theoretical analysis of the interdependence of monetary policy and economic fluctuations. However, the usefulness of this concept for the practice of monetary policy is limited—especially owing to the fact that the natural real rate of interest and its law of motion cannot be measured with satisfying precision.
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