Real Equilibrium Interest Rates in the Euro Area

Updated estimates of real equilibrium interest rates in the euro area, derived from eight prominent methodologies proposed in the academic literature, deliver a wide range of estimates, partly because they vary in time horizon and economic complexity. By the end of 2024, shorter-term equilibrium rates mostly exceeded longer-term rates, with foreign spillovers contributing positively to euro area equilibrium rates. Given the wide range of estimates and their high uncertainty, a judgment-based assessment should be based on three criteria and consider their conceptual fit, robustness, and alignment with other economic indicators. Even then, the uncertainty surrounding the estimates represents a specific form of model uncertainty that necessitates the formulation of robust conclusions and policy recommendations. Our results show that ECB policy rates are broadly aligned with short-run efficient rates and suggest that monetary policy remained restrictive at the end of 2024.