The natural yield curve: its concept and measurement



This paper illustrates the concept of the natural yield curve and how to measure it. The natural yield curve extends the idea of the natural rate of interest defined at a single maturity to one defined for all maturities. If the actual real yield curve matches the natural yield curve, the output gap will converge to zero. An empirical analysis using data for Japan shows that past monetary easing programs expanded the gap between the actual real yield curve and the natural yield curve mainly for short and medium maturities and led to accommodative financial conditions. By contrast, the quantitative and qualitative monetary easing policy has expanded the gap for long maturities as well as short and medium maturities. The natural yield curve is expected to provide a useful benchmark in the conduct of both conventional monetary policy and unconventional monetary policy aiming to influence the entire yield curve.


Natural yield curve Yield curve gap Natural rate of interest Interest rate gap Term structure 

JEL Classification

C32 E43 E52 E58 


  1. Barsky R, Justiniano A, Melosi L (2014) The natural rate of interest and its usefulness for monetary policy. Am Econ Rev 104(5):37–43CrossRefGoogle Scholar
  2. Bomfim AN (1997) The equilibrium fed funds rate and the indicator properties of term-structure spreads. Econ Inquiry 35(4):830–846CrossRefGoogle Scholar
  3. Brzoza-Brzezina M (2003) Estimating the natural rate of interest: a SVAR approach. Working Paper 27, National Bank of PolandGoogle Scholar
  4. Brzoza-Brzezina M, Kotłowski J (2014) Measuring the natural yield curve. Appl Econ 46(17):2052–2065CrossRefGoogle Scholar
  5. Christensen JHE, Diebold FX, Rudebusch GD (2009) An arbitrage-free generalized Nelson–Siegel term structure model. Econ J 12(3):33–64Google Scholar
  6. Clark TE, Kozicki S (2005) Estimating equilibrium real interest rates in real time. N Am J Econ Financ 16(3):395–413CrossRefGoogle Scholar
  7. Cuaresma J, Gnan E, Ritzberger-Gruenwald D (2004) Searching for the natural rate of interest: a euro area perspective. Empirica 31(2–3):185–204CrossRefGoogle Scholar
  8. Diebold FX, Li C (2006) Forecasting the term structure of government bond yields. J Econ 130(2):337–364CrossRefGoogle Scholar
  9. Diebold FX, Rudebusch GD, Aruoba SB (2006) The macroeconomy and the yield curve: a dynamic latent factor approach. J Econ 131(1):309–338CrossRefGoogle Scholar
  10. Justiniano A, Primiceri GE (2010) Measuring the equilibrium real interest rate. Econ Perspect 34(1):14–27Google Scholar
  11. Kamada K (2009) Japan’s equilibrium real interest rate. In: Fukao K (ed) Macroeconomy and industrial structures. Keio University Press (in Japanese), pp 387–427Google Scholar
  12. King M, Low D (2014) Measuring the ‘world’ real interest rate. NBER Working Paper 19887Google Scholar
  13. Laubach T, Williams JC (2003) Measuring the natural rate of interest. Rev Econ Stat 85(4):1063–1070CrossRefGoogle Scholar
  14. Laubach T, Williams JC (2016) Measuring the natural rate of interest redux. Bus Econ 51(2):57–67CrossRefGoogle Scholar
  15. Neiss KS, Nelson E (2003) The real-interest-rate gap as an inflation indicator. Macroecon Dyn 7(2):239–262CrossRefGoogle Scholar
  16. Nelson CR, Siegel AF (1987) Parsimonious modeling of yield curves. J Bus 60(4):473–489CrossRefGoogle Scholar
  17. Oda N, Muranaga J (2003) On the natural rate of interest: theory and estimates. Bank of Japan Working Paper Series, 03-J-5 (in Japanese)Google Scholar

Copyright information

© Springer-Verlag GmbH Germany 2017

Authors and Affiliations

  1. 1.Bank of JapanTokyoJapan
  2. 2.Bank for International SettlementsBaselSwitzerland

Personalised recommendations