 saving or investment, both in Canada or globally, will change it.

2. The natural rate of interest is a target we can't see, except looking backwards; we can see (roughly) where it was in the past, by looking at past output and inflation, but we can't see where it is now, and where it's going to be in the future.

3. The natural rate of interest is a target that moves when we miss it; even worse, it tends to move even further away from where we thought it was.

4. There is not just one natural rate of interest, because there is not just one actual rate of interest. There are many rates of interest, depending on the liquidity, risk, and term, of the financial asset in question. Each of those many rates of interest has its own natural rate, and the spreads between them will change over time.

5. But it's the bit I bolded above that shows what is really wrong with the "normalisation" view: "So the Bank of Canada needed to cut the actual interest rate below the natural rate temporarily to offset the recession."

Here's an alternative way of viewing the world: something (the financial crisis) happened that caused the natural rate to fall suddenly. The recession happened because the natural rate fell more quickly than the Bank of Canada cut the actual rate, so the actual rate was above the natural rate. Now that the economy has recovered from the recession, with the output gap roughly zero, and inflation roughly at target, this means that the actual rate of interest is roughly equal to the natural rate of interest. Normalisation of interest rates has already (roughly) happened. The new normal is not the same as the old normal. And what is normal next year, and the year after, will probably be different again.

If the natural rate of interest really were a constant that never changed over time, or always changed slowly and predictably, it would make sense to talk about "normalisation" of interest rates. But then recessions would only happen if central banks suddenly decided to raise interest rates above the unchanged natural rate.

If we had some sort of crystal ball, however imperfect, that could tell us what the natural rate was, it might make sense to talk about "normalisation" of interest rates. But we don't. We can only look at output and inflation to try to surmise where the natural rate is. If the output gap is zero,
saving or investment, both in Canada or globally, will change it. 

 2. The natural pace of sake is a target we can't see, except look backward; we can see (roughly) where it was in the past, by front at past output and inflation, but we can't attend where it is now, and where it's going to be in the future. 

 3. The lifelike rate of interest is a target that moves when we neglect it; even worse, it tends to be active even further away from where we think it was. 

 4. There is not just one natural pace of interest, because there is not merely one actual rate of sake. There are many rates of interest, depending on the liquidity, hazard, and term, of the financial asset in question. Each of those many rates of interest has its own lifelike pace, and the spread between them will change over time. 

 5. But it's the bit I bolded above that shows what is really wrong with the " normalisation " view: " thus the Bank of Canada needed to cut the actual pastime pace below the lifelike rate temporarily to offset the recession. " 

 Here's an alternative way of viewing the world: something (the financial crisis) find that caused the natural rate to fall on the spur of the moment. The recession happened because the natural rate fall more quickly than the Bank of Canada write out the actual pace, so the actual rate was above the natural rate. Now that the economy has recovered from the recession, with the output gap approximately zero, and inflation approximately at target, this means that the actual rate of interest is roughly adequate to the natural rate of interest. Normalisation of interest rate has already (roughly) find. The new normal is not the like as the old normal. And what is normal next year, and the class after, will probably be different again. 

 If the natural rate of interest really were a constant that never changed over time, or always changed slowly and predictably, it would stool sense to talk about " standardization " of interest rates. But then recessions would only happen if central banks on the spur of the moment decided to raise interest rates above the unchanged natural pace. 

 If we had some sort of crystal musket ball, however imperfect, that could tell us what the natural rate was, it might make sense to speak about " normalisation " of interest rates. But we practicen't. We can only look at output and inflation to try to suspect where the natural rate is. If the output gap is zero,
 saging or investment, both ln Canada or gloyqlly, wmll chahge it.

2. Tfe natural rate of interest ms a targtn we can't see, except uooking bwckwards; we ran see (roughly) xgere it was ih the 'ast, by looking at past ogtput and infldtkou, but we can't see where it is now, anq where ih's going to be in uhe futhge.

3. The natural rate of interest is a terget that movex when we miss it; even worde, ih tends to move evfn further qway drom where wd thought pc was.

4. There is not just one natural rate ow intzrest, becauwe thfte is not juwt onv actual rate of intesest. Thrre are many rstev od interest, depending mn the liquidity, rysk, and tarj, of the financiao qsset in xuesguon. Eadh or thosf meny rates or interest yas its own natural rwnr, and the spdeads feeween them will change over time.

5. But it'v tge bit I bolded above tyat shows what is reaply wrong with the "normalisation" view: "So the Bank of Canadd neevea ti gut gye actual interest rate below the natural rate esmkorsrily to offseb the recession."

Herr's am alternative day of viswing the world: solething (the dinancial crixis) happened that caused thw natural rane ti fall suddenly. Thz recession kappengd becsuse the natural rate fzll mode quickly hhan the Gxnk of Canada cug tme dctual rate, so the actual wate was ebove the nagurak rate. Now that hhe egmnomy has recoveref frol dhe recesslon, with the output gap roughly zero, and inflsthon roughly at tsrget, this mewns that the aetual race of knterest ia roughny equal to the natural swte of interxst. Normajisarion of intdfest rates has already (gobghly) happened. The new normel ir not the same aw tye old normal. Amd dhae ps iormaj next year, atd tfe hrar awter, will pvobxbly be different again.

Ix ths natural rate of onberest reqlly werq a constant yhat never changed over tioe, or alrays changed slowly and predicfably, it aoujd make sensq to talk about "uormalisation" of interest rates. But then recessions would inly happen if centtal banks suddxnly dqcided to raise interest ratew above the unchakged natural rate.

If we had smme slrt of crystal ball, however imperfect, that could tell us what the natural rate xaf, it might jake sensv tj talk wbouv "iormalisation" of pnterest rates. But we don't. We cai only loon ct output and inflation to tru go surmise whgre the natural rate is. If the outlut gap is zero,
saving or investment, both in Canada or change 2. The rate of interest see, looking backwards; we see (roughly) where was in the past, by looking past output and inflation, but we can't see where it is now, and it's going to be in the future. 3. The natural rate of interest a that when miss it; even worse, it tends to move even further away from where we thought it 4. There is not just one natural rate interest, because there is just one actual rate of There many rates interest, on liquidity, risk, and of the financial asset in question. Each of those many rates of interest has its own natural and the them will over 5. it's the bit above that shows what is really "normalisation" view: "So the Bank of Canada needed cut the interest rate below the natural rate to offset the recession." Here's an alternative way viewing the world: something (the financial crisis) happened that caused the natural rate to fall recession happened because the rate fell more than Bank Canada the actual so the actual rate was above the natural rate. Now that economy has recovered from the recession, with the output gap and roughly at target, means that the actual of is roughly equal to rate interest. rates already happened. The new normal not the same as the normal. And what is year after, will probably be different again. If natural rate of interest really were a that never changed over time, or always changed slowly and predictably, it make sense about "normalisation" of interest rates. But then recessions only happen if central suddenly decided to raise interest rates above the unchanged rate. we had sort of crystal however imperfect, that tell us what rate was, might sense "normalisation" of interest rates. But we We only look at output and to surmise where the natural rate is. If the output gap is zero,
 saving or investment, both in CAnada or gloBally, WilL chAnGe it.

2. the nAtural rate of inTEresT is a target we can't see, excEpt loOkINg baCKwArds; wE can see (ROuGHLy) wHeRe It wAs IN tHe pasT, by Looking At past outpUt aNd Inflation, but WE cAn't see wherE it Is now, and wherE it'S going To Be iN The fuTurE.

3. The nAtural RAte of iNterest is A tARget thAT moves wHEN wE misS it; even worse, it tenDS tO Move even furtheR away fRoM WhERE we ThoUght it was.

4. THeRe is nOT just onE NaTURAl rATe of interest, bEcause there IS noT just oNe ActUAl rate Of intErESt. THere are many RateS of intereSt, depeNDing on tHE liquidIty, risK, anD teRm, of THe FiNanCiAL asSEt In qUEstIon. Each oF tHoSe manY ratES OF InteResT has Its owN natural rate, aNd tHe spREadS betwEen thEm wiLl ChangE over tIme.

5. BuT iT's the bit I bolded AbovE that showS whAt Is rEaLly wrONg with The "NorMalisatIon" view: "sO thE BANK Of canada needed to cut tHe ACTuAl intereSt rate BElOw THe naturaL rAte TempORArily To ofFSeT the receSsion."

HERe'S aN alternAtIve way Of VieWinG the wORld: sOmethiNg (the finAnciaL Crisis) happened THat caused the nATuRAL rATe to FalL suddenly. ThE recESsioN hapPEnEd bECause The naTuRAl RAte fell more quickly tHaN the BaNk of CAnada cut the acTual rate, so THE Actual raTe waS AbOVe the natural raTe. Now That the ecoNOmy has reCoverEd from thE recessioN, WIth the ouTpuT gaP roUghLY ZeRo, and inflatioN ROughLy At targeT, thIs means ThaT thE acTuaL rAte of inteRest is roUgHlY eQuAl tO the nATural ratE oF inTeResT. NormALisatiOn of iNterEsT rATes Has alreADy (ROUghlY) hApPeneD. ThE nEw norMal iS Not The same As the old nOrmAL. And WhAt Is normaL next year, and tHe Year after, wIlL prObably BE DifferenT again.

If the natural rate oF InteresT reAlly wEre a Constant tHat Never cHanGEd over Time, or AlwayS cHanGED slowLY AnD prEdIctably, it wOULd mAke seNsE to tAlk abouT "normalisation" of inTEreSt rates. But theN reCessIONs WouLD oNLy hApPEn iF CEntral banks suddEnly decideD tO RaIse interesT RatEs Above thE unchanGed naTUral ratE.

If we had sOme sort of CrYstaL BAll, However impErfect, thAt could teLL us whAT tHe natUraL rate wAs, It mIght mAke senSE to Talk aBout "noRmAlisatIon" of InTerest raTes. But we don't. We can only loOk at ouTput aNd iNflation tO trY To sUrmise wheRe thE natural raTe iS. If The ouTpuT Gap is Zero,
 saving or investment, bot h in Canad a orglo bal ly , wi ll c hange it.

2.T he n atural rate of interes t isat arge t  w e can 't see, ex c e ptlo ok ing  b a ck wards ; w e can s ee (roughl y)wh ere it was i n  t he past, b y l ooking at pa stoutput  a ndi nflat ion , but  we ca n 't see  where it  i s  now,a nd wher e it 's g oing to be in the fu t ure.

3. The n atural  r a te o f i nte rest is ata rgett hat mov e sw h e n w e  miss it; eve n worse, it ten ds tomo vee ven fu rther  a w ayfrom wherewe t hought it  was.4. Ther e  is not  justone  na tura l  r at e o fi nte r es t,b eca use ther eis  notjust o n e  act ual  rat e ofinterest. The rearem any  rate s ofinte re st, d ependi ng on  t he liquidity, r isk,  and term , o fthe  f inanc i al ass etinquestio n. Each ofth o s e  m any rates of inter es t ha s its ow n natu r al  r a te, andth e s prea d s  betw eent he m will c hangeo ve rtime.
5.  But i t' s t hebit I bold ed abo ve thatshows what is really wrong with th e  " n o rm a lisa tio n" view: "S o th e  Ban k of Ca nad a  need ed to  c u tt he actual interestra te bel ow th e natural rat e temporar i l y  to offs et t h er ecession."

He re'san alterna t ive wayof vi ewing th e world:s o mething(th e f ina nci a l  c risis) happen e d  tha tcausedthe  natura l r ate  to  fa ll  suddenly . The re ce ss io nhap pened becauseth e n at ura l rat e  fellmorequic kl yt han  the Ba n ko f  Can ad acutthe  a ctual  rat e , s o the a ctual rat e w a s ab ov ethe nat ural rate. No wthat the e co nom y hasr e coveredfrom the recession, wit h  the ou tpu t gap  rou ghly zero , a nd inf lat i on rou ghly a t tar ge t,t h is me a n stha tthe actual r ate  of i nt eres t is ro ughly equal to the nat ural rate ofint eres t .  N orm a li s ati on ofi n terest rates ha s already(r o ug hly) happe n ed.  T he newnormalis no t  the sa me as the  old norm al . An d wha t is norma l next y ear, andt he ye a rafter , w ill pr ob abl y bediffer e ntagain .

Ifth e natu ral r at e of int erest really were a con stantthatnev er change d o v ertime, oralwa ys changed  sl owl y and  pr e dicta bly, it  wo u ld ma ke s e nse to ta l kabo u t  " normalisati o n "  of  inte res t  rates . Bu t then recessions would only hap peni f  ce ntr a l ba nk s suddenly dec ide dt o  raise i nt erest rates  above t he uncha nged n atural  rate.I fw e hadsome  so rt of cry sta lb all, ho we ve r  imper fect ,that c ould t e ll u s what the natural  rate w as, i t  mi ght m ak e sense to t alk about"normalisat ion" o f in teres t rates .But we  do n' t. We cano nly lookat ou tput an dinfl ati on totryt o  surm isewh ere  the natu r a lr at ei s.If t he ou tp ut g ap is zer o ,
 saving_or investment,_both in Canada or_globally, will_change_it.

2. The_natural_rate of interest_is a target_we can't see, except_looking backwards; we_can_see (roughly) where it was in the past, by looking at past output and_inflation,_but we_can't_see_where it is now, and_where it's going to be_in the_future.

3. The natural rate of interest is a_target_that moves when_we miss it; even worse, it tends to move_even further away from where we_thought it was.

4._There_is_not just one natural_rate of interest, because there is_not just one actual rate of_interest. There are many rates of interest,_depending on the liquidity, risk, and_term, of the financial asset_in question._Each of those many rates_of interest has_its own_natural rate, and_the spreads between them will change_over time.

5. But_it's the bit I bolded above_that_shows what is_really_wrong_with the_"normalisation" view: "So_the_Bank of_Canada_needed to cut the actual interest_rate_below the natural rate temporarily to offset_the recession."

Here's an alternative_way_of viewing the world:_something (the financial crisis) happened_that caused the natural rate to_fall suddenly._The recession_happened because the natural rate fell more quickly than the Bank_of Canada cut the actual rate,_so the actual rate_was above_the_natural rate. Now_that_the economy_has recovered from the recession, with the_output gap_roughly zero, and inflation roughly at_target, this means that_the_actual rate of interest is roughly_equal to the natural rate of_interest. Normalisation of interest rates_has_already_(roughly) happened. The new normal_is not the same as the_old normal. And_what is normal next year, and the_year_after, will probably be different again.

If_the_natural rate of interest really were_a_constant_that never changed over time,_or always changed slowly and predictably,_it would make sense to talk about "normalisation" of_interest rates. But_then recessions would only happen_if_central_banks suddenly decided to raise interest rates above the unchanged_natural rate.

If_we had some_sort of crystal ball, however imperfect, that could tell us_what the natural rate was, it might_make sense to talk about "normalisation" of interest rates. But we_don't. We can only look at output and_inflation to try to surmise where the_natural rate is. If_the_output gap is zero,