Template-type: ReDIF-Paper 1.0
Author-Name: Matthias Burgert
Author-Name-First: Matthias
Author-Name-Last: Burgert
Author-Person: pbu342
Author-Name: Tobias Cwik
Author-Name-First: Tobias
Author-Name-Last: Cwik
Author-Person: pcw3
Author-Name: Joséphine Molleyres
Author-Name-First: Joséphine
Author-Name-Last: Molleyres
Author-Name: Barbara Rudolf
Author-Name-First: Barbara
Author-Name-Last: Rudolf
Author-Name: Jörn Tenhofen
Author-Name-First: Jörn
Author-Name-Last: Tenhofen
Author-Person: pte292
Title: The natural rate of interest in Switzerland
Abstract: Obtaining reliable estimates of the natural rate of interest, r*, and understanding its drivers is key for assessing long-run trends in real interest rates. In turn, this plays a role in assessing the stance of monetary policy. Against this backdrop, we discuss the evolution of real interest rates in Switzerland and present a portfolio of models used by the Swiss National Bank (SNB) to estimate r* as well as investigate its drivers. Moreover, we discuss the implications of the r* estimates for monetary policy. We find that, consistent with the evolution of real interest rates globally and in Switzerland, all model estimates point to a significant decline in r* since the mid-1980s. Also, r* is lower in Switzerland than abroad. Potential output growth as well as global factors related to the demand for and supply of safe and liquid assets (i.e., the convenience yield) and to demographics (as reflected in the discount factor) appear to be important drivers of the downward trend in r*. However, generally speaking, r* estimates are subject to sizeable model and statistical uncertainty. Concerning policy implications for Switzerland, we argue that while estimates of r* provide an important piece of information for monetary policy, other factors, such as the exchange rate, are also key determinants of monetary conditions for a small open economy such as Switzerland.

Length: 33 pages
Creation-Date: 2025
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/economic-studies/2025/economic_studies_2025_14
File-Format: text/html
Number: 2025-14
Classification-JEL: E52, E43
Keywords: Natural rate of interest, Demographics, Productivity growth, Monetary policy
Handle: RePEc:snb:snbecs:2025-14