Natural Rate of Interest is a rate consistent with equilibrium conditions specified by a theory. Wicksell connects it with price neutrality and hypothetical lending of real goods. LW and HLW models estimate a short-term real rate at full economic capacity and stable inflation. These definitions cannot be interchanged without explanation.
In chapter eight, Wicksell seeks a rate that itself pushes commodity prices neither up nor down. He compares it with interest in hypothetical lending of real capital goods without money. This is a theory of rates and prices, not a figure taken from a bank’s offer. [Wicksell — Interest and Prices, VIII]
New York Fed describes LW and HLW as estimates of an unobserved short-term real rate when the economy is at full strength and inflation is stable. They use output, inflation and interest-rate data. Identify the method alongside the variable; different models need not give the same value. [New York Fed — Measuring the Natural Rate of Interest]
A Federal Reserve study shows expected inflation’s role in calculating the ex-ante real rate. Our simplified example: nominal 4% minus expected inflation of 2% gives approximately 2%. This converts a given rate; it does not estimate its natural level. Subsequently realized inflation answers a different question. [Federal Reserve — The Role of Inflation Expectations]
Fischer explains that the Laubach-Williams approach targets the level after shorter-term influences, including the cycle, have faded. A short maturity therefore does not imply a forecast for next week. Distinguish instrument maturity, equilibrium horizon and observation date. [Fischer — The Low Level of Global Real Interest Rates]
New York Fed separates vintage-data estimates from current model estimates. Later data or methodological changes may revise estimates of the past. To assess an earlier decision, record the release and data vintage; today’s curve need not represent information available then. [New York Fed — Measuring the Natural Rate of Interest]
The authors of the 2020 Federal Reserve study change how inflation expectations enter and obtain different estimates and uncertainty bands. This is more than rounding. Report uncertainty and sensitivity to assumptions alongside a point estimate; a negative model result is not an unconditional observed fact. [Federal Reserve — The Role of Inflation Expectations]
In his 2018 speech, Powell stresses uncertainty about the neutral rate and the use of multiple indicators. A gap between a comparable real rate and estimated r* may aid interpretation but removes neither uncertainty nor other influences. One number alone does not establish the appropriateness of a particular intervention. [Powell — Monetary Policy in a Changing Economy]
A published r* estimate concerns a particular economy and macroeconomic conditions. This editorial application follows that definition: historical Bitcoin returns or a lending service’s quoted rate do not directly measure r*. First align currency, horizon, expected inflation and risks; a similar numeric format does not mean the same variable. [New York Fed — Measuring the Natural Rate of Interest] [Federal Reserve — The Role of Inflation Expectations]
For the clearest picture, read this entry together with Austrian Business Cycle Theory, Originary Interest, Time Preference, Interest-rate risk, Economic Calculation. The reverse links also lead from Austrian Business Cycle Theory, Originary Interest.