TL;DR: r-star, the real neutral rate of interest, is one of the unobservable star variables in mainstream macroeconomics. It is notoriously hard to estimate. The Australian IS curve coefficient on the real-rate gap is small relative to macro noise, so the model cannot choose between a growth anchor, a bond-yield anchor, or a blend of the two. Those three approaches, drawing on Wicksell, imply a real r-star between roughly 1.5 and 2.6 per cent, and a nominal neutral cash rate between about 4.0 and 5.1 per cent. With the RBA policy cash rate at 4.35 per cent, policy is not extreme. The data alone does not say whether it is mildly restrictive or mildly accommodative. The post-GFC track record and Governor Bullock’s recent language both lean toward the yield-anchored interpretation, on which 4.35 per cent is mildly restrictive.
Introduction
The cash rate is at 4.35 per cent. The RBA has just delivered a third consecutive hike. Half the commentary calls it overdue tightening, the other half calls it overkill, and a vocal minority calls it inadequate. Almost everyone making these claims is implicitly comparing the current rate to neutral. Almost no one explains where their estimate of neutral comes from.
This post is an attempt to be honest about what we can and cannot say about neutral, using a Bayesian Holston-Laubach-Williams model I have built and tested across multiple specifications.
The short version is that the empirical apparatus does not give the kind of clean answer the policy commentary tends to assume. The interest rate channel through which monetary policy affects output is genuinely weak in Australian data: a 1 percentage point change in the real rate gap moves the output gap by about 0.05 percentage points, against quarter-by-quarter noise of around 0.7 percentage points. The signal is more than an order of magnitude below the noise floor, so the model cannot resolve r-star out of the data independently of whatever structural assumption you impose. What you get instead is a framework for placing weight on either of the two Wicksellian anchors and reading off what that weighting implies. The data does not tell you which weighting is right. The post-GFC decade gives indirect evidence about which has tracked the economy better, and on that evidence the bond-anchored view has the better fifteen-year track record. Bullock’s recent framing is consistent with the same view. But these are judgements, not estimates.
The longer version requires some setup.
The IS curve intercept
The natural rate of interest, r-star, is the textbook intercept of the IS curve at potential output. It is the real rate at which the economy settles at sustainable capacity, neither overheating nor running below. Add the inflation target (2.5% in Australia) and you get the nominal neutral cash rate.
The concept goes back to Knut Wicksell, writing in the late 1890s. Wicksell distinguished between the market rate of interest set by financial conditions and a natural rate determined by the real productivity of capital. When the market rate sits below the natural rate, desired investment exceeds desired savings, demand runs above capacity, and inflation rises. When the market rate sits above the natural rate, the reverse happens. The natural rate clears the savings-investment market at full employment.
Wicksell’s framing already contains the two readings that the modern empirical apparatus will spend a century trying to choose between.
The supply-side reading takes the natural rate to be anchored by the real return on capital. In a competitive economy at full employment, the marginal product of capital determines the equilibrium real return that savers can earn and investors are willing to pay. That return cannot drift far from the underlying productivity of the capital stock without setting up arbitrage that pulls it back. Over long horizons, the real return on capital is bounded by the rate at which the productive capacity of the economy grows (GDP growth). Faster trend growth supports a higher equilibrium real rate. Slower trend growth, whether from demographic transition, productivity slowdown, or capital deepening, drags it down. On this reading, trend growth is the natural rate’s structural anchor.
The market reading complements this. Real bond yields measure where actual real rates settle when financial markets clear. Strip out the term and risk premia and what remains is the market’s collective best guess about average future real short rates, which over long horizons should converge to the natural rate. The market reading is contaminated by everything that affects bond yields beyond the natural rate. But it is direct in a way the structural reading is not, because it incorporates real-time information about how rates are actually clearing markets.
Wicksell himself doubted whether the natural rate could be measured precisely. The modern empirical apparatus has not changed that conclusion. What it has done is make the limits of measurement visible.
The post-GFC decade was unusual
For most of the inflation-targeting era from 1993, the relationship between unemployment and inflation in Australia behaved roughly as the textbook predicted. Then it stopped. Then it started again.
The chart picks four regimes. The 1998 to 2002 period (light blue) sits high on the unemployment axis and shows a recognisable downward slope through the 2.5 per cent inflation target. The 2003 to 2008 period (orange) sits at lower unemployment and shows a steeper Phillips curve again, with the late-cycle pre-GFC inflation push visible as the upward bend. Both fit the textbook story.
The 2010 to 2019 period (dark blue) is the anomaly. Unemployment fluctuated between around 5 and 6 per cent and inflation barely budged. The Phillips curve appears flat through that decade. The same flattening happened in the US, the UK, and the euro area, and it became a defining feature of the post-GFC empirical landscape.
The post-COVID period (red) is a return to recognisable dynamics, but more sharply curved than what came before. Unemployment fell into the high 3s, well below the typical inflation-targeting-era range, and inflation responded across a wide vertical span as the supply shocks of 2022 to 2024 worked through and were then partly absorbed. The Phillips curve is back. It looks roughly like 2003 to 2008 shifted left and steepened.
The flat dark-blue Phillips curve was one symptom of a broader strangeness across the developed world that the Great Divergence section below returns to. R-star estimates were the macro variable most directly affected. Models that tried to identify the equilibrium real rate consistent with full employment kept producing lower numbers, and by the late 2010s, mainstream r-star estimates for advanced economies were near zero or even negative. Policy commentary built up around the assumption that this was the new normal.
If r-star fell to unusually low levels during the post-GFC regime, it should be drifting back to more normal levels as the regime ends. That is the prior I started this work with. The data has been more interesting than that prior allowed for.
The estimation problem
The standard approach in the international literature is the Holston-Laubach-Williams model, a state-space framework that tries to identify r-star jointly with potential output and trend growth. It is the workhorse of modern r-star estimation and what most central banks use when they cite an r-star figure.
When I implemented HLW for Australian data in its canonical form, the model failed to identify r-star. The latent variable that is supposed to capture independent movement in the equilibrium real rate collapsed toward zero. R-star tracked long-run trend growth almost exactly, with no useful independent variation. The result is identification failure rather than a confident finding of stability. The model is reporting that it cannot tell the latent r-star apart from trend growth.
This matches what other researchers have found for similar small open economies. McCririck and Rees in the RBA Bulletin in September 2017 found r-star somewhere in the 0.5 to 1.5 per cent real range using model averaging, explicitly because no single specification produced confident estimates. Luci Ellis at the RBA in October 2022 reported nine model estimates ranging from negative 0.5 to positive 2 per cent, in a speech titled “The Neutral Rate: The Pole-star Casts Faint Light.” Both pieces are worth reading in full. They reach similar conclusions to the work here through different methodological routes.
Adding the inflation-linked bond yield as another observation does not solve the problem cleanly. When I added the indexed bond, identification improved but the estimates went implausible. R-star ended up tracking the bond yield minus a constant term premium, falling below negative 1 per cent in 2022. The negative trough is a giveaway that the constant-term-premium assumption is doing work it should not be doing. Real term premia compressed substantially during the post-GFC period, and the constant-premium assumption pushed all of that compression into r-star itself.
What gives a credible time path is to build the bond yield into the definition of r-star directly. Let r-star be a weighted blend of two anchors, trend growth on one side and the bond yield minus a term premium on the other, with the data choosing the weight. Two observable anchors, one scalar weight, no unidentified random walks. The model converges and the central estimate is credible.
The technical detail, including the multiple specifications I tried and the prior-sensitivity sweeps that confirm the headline finding, is in the model notes.
Three approaches drawing on Wicksell
The multiple specifications reduce to three substantively different approaches, each one a different position on the bond-versus-growth axis Wicksell pointed to.
The growth-anchored approach. R-star equals trend growth. This is the supply-side reading taken seriously: the structural anchor is real productivity, proxied by trend growth. The latest estimate of trend growth is around 2.6 per cent. Trend growth moves only slowly, declining smoothly from around 3.3 per cent in the late 1980s. Earlier in the work I tried to estimate this as a separate latent following the canonical HLW approach, with and without small-open-economy IS curve regressors. Both attempts failed identification. The latent that was supposed to capture independent movement in r-star away from trend growth collapsed toward zero, and r-star simply tracked trend growth. So the cleanest way to read the growth-anchored estimate is off the trend growth line in the decomposition chart below.
The yield-anchored approach. R-star equals the indexed ten-year bond yield minus a constant term premium. The market reading taken seriously. The estimate moves a lot, dropping below zero in 2020 and recovering to around 1.5 per cent at the end of 2025. The dynamics match what bond markets have actually been doing.
The blend. R-star is a weighted average of the two anchors, with the weight chosen by the data. The latest estimate is around 2.2 per cent real, sitting between the two extremes by construction. The model’s default specification.
The decomposition chart is the headline visual. It shows all three approaches in one place. The blue line is trend growth, the structural anchor, declining smoothly from around 3.3 per cent to 2.6 per cent over the sample. The orange line is the bond anchor, much more volatile, hitting nearly 5 per cent in the mid-1990s, dropping below negative 1 per cent in 2020, and snapping back to around 1.8 per cent. The dark navy line is the blend, taking level discipline from the structural anchor and dynamics from the market anchor, and ending at around 2.2 per cent.
The Great Divergence
In the mid-1990s the two anchors agreed at around 4 per cent and r-star was unambiguous. Whichever Wicksellian reading you took, you got the same answer. By the late 2000s they were still close, both around 3 per cent. Then the post-GFC decade pulled them apart.
The bond anchor fell hard. From around 3 per cent in 2008 it dropped through zero in 2014, kept falling, and reached about negative 1.3 per cent in 2020. Trend growth declined too, but slowly and modestly, from around 3.0 per cent to 2.4 per cent over the same period. At the trough in 2020 the gap between the two anchors was about 3.5 percentage points. That is an enormous gap for a single conceptual object. If r-star is supposed to anchor savings-investment equilibrium, having two reasonable readings of it that disagree by 3.5 percentage points is not a minor empirical problem. It is the empirical problem.
The post-GFC strangeness was not just low rates. The flat Phillips curve I showed earlier was part of it. Asset prices ran above what conventional valuation models suggested. Bond yields compressed in ways that strained standard open-economy macro. Wage growth stayed weak even when unemployment fell to historically low levels. Productivity growth slowed across the developed world. Central banks ran out of conventional policy room and turned to quantitative easing, forward guidance, and various forms of yield curve control. The “lower for longer” framework hardened into consensus. Secular stagnation became a respectable mainstream position. The natural rate appeared to have shifted permanently down by around two and a half percentage points and nobody could fully explain why.
Then 2022 happened. Inflation surged. Central banks tightened sharply. Bond yields rose, partly because cash rates rose, partly because risk premia rebuilt, partly because long-run inflation expectations rose. Trend growth was roughly unchanged through this. The gap between the two anchors started closing not because trend growth fell to meet the bond anchor, but because the bond anchor rose to meet trend growth.
By 2025 the Australian gap is about 0.8 percentage points, with trend growth at 2.6 per cent and the bond anchor at 1.8 per cent. That is small enough that the choice between the three approaches becomes less consequential for current-policy questions, even if the methodological point about identification still stands. If both anchors imply a similar r-star, you do not need to pick between them. The Great Divergence is closing.
It is closing in Australia. It has not closed everywhere.
The chart shows the New York Fed’s HLW r-star estimates for the US, Canada, and the Euro Area, alongside the blend estimate for Australia. Three different post-GFC paths are visible. Australia at 2.2 per cent fell hard and recovered sharply, the dramatic Great Divergence story. The US at 0.9 per cent fell similarly hard but has only partially recovered. Canada at 1.8 per cent took a different path entirely: a shallower decline, a smooth trough around 1.5 per cent through the mid-2010s, and a measured recovery. Canada never opened the kind of gap between bond yields and trend growth that the Australian and US data showed at the 2020 trough. The Euro Area at 0.0 per cent fell as far as Australia and the US did, and has not recovered at all.
The Canadian path is informative because it shows that Europe’s experience is not the universal small-open-economy outcome. Canada is structurally similar to Australia in many respects, including being a resource exporter with floating exchange rate and an inflation-targeting central bank, and the Canadian r-star path looks much more like a moderated version of the Australian one than like the European one. So the European stuck-at-zero is specifically European, not generic to small or medium open economies. Whatever drove the European structural-versus-market gap to stay open is something about Europe.
Taking the European number at face value implies that European trend growth and the European bond market have not rejoined company. With the ECB cash rate at 2 per cent and inflation slightly above the 2 per cent target, real ECB policy is roughly zero, which sits right on the NY Fed’s r-star reading. The ECB is therefore neutral on a yield-anchored reading. What that elides is that European trend growth is not zero. The structural Wicksellian anchor for the Euro Area is somewhere between 1 and 1.5 per cent. The European Great Divergence is still wide open. If the next decade looks more like the 2010s than like the 2020s, Europe is positioned for it. Australia, the US, and Canada are not, though for different reasons.
This matters for the framework. The Australian convergence may be temporary. The next divergence episode could open in any of three directions: bond yields fall back as inflation re-anchors and growth slows, trend growth falls as productivity disappointment continues, or both move in opposite directions again as supply shocks roll through differently. Whichever direction it goes, the three-approach framework is what tells you what is happening. When the anchors agree, the framework looks redundant. When they disagree, only the framework can tell you that they disagree, by how much, and what each reading would imply.
What the data says about which approach
The most informative result is that the data does not pick between the three approaches. The blend specification has a single scalar weight, conventionally written as α, where α equals 1 means r-star equals trend growth and α equals 0 means r-star equals the bond anchor. If the IS curve had information about which anchor was right, the posterior on α would concentrate. It does not.
The posterior median is 0.58 with a 90 per cent credible interval running from 0.03 to 0.99. There is mild density pile-up at both endpoints and a gentle slope toward higher α. The data weakly prefers more weight on trend growth, but the posterior is wide enough to cover almost any weighting. An order of magnitude more data would be needed before the central tendency could be considered firmed up, and the prior choice is doing visible work in the posterior shape.
A more striking visualisation comes from drawing 500 lines from the posterior of r-star, conditioning on whether α was near 0 or near 1 in each draw.
When α is near 1, r-star tracks trend growth (the upper blue mode). When α is near 0, r-star tracks the bond anchor (the lower orange mode). The blend, which is the average across all draws, is the dark line that runs through the middle. The chart is essentially a picture of the indeterminacy. The IS curve cannot tell the data which mode to commit to, so the posterior draws split between them.
This is the Buncic, Pagan and Robinson (2023) finding made concrete on Australian data. When the number of latent shocks meets or exceeds the number of independent observables that constrain them, the latent stars are not point-identified. The Bayesian posterior is the prior projected through the structural model with a thin layer of likelihood on top. I have demonstrated this empirically across multiple specifications, varying both the r-star identity and the IS-curve composition, and observed the predicted pattern in every one.
The mechanism is the weakness of the IS curve’s rate channel that I flagged at the top. The posterior median on the rate-gap coefficient sits at around minus 0.05 in every specification, against a residual standard deviation of about 0.7 percentage points and a sample standard deviation on the rate gap of about 2 percentage points. The signal-to-noise ratio for r-star identification through the IS curve is therefore roughly 0.05 multiplied by 2 divided by 0.7, which is about 0.14. That is a one-in-seven effect across roughly 150 quarters of data, and the within-quarter signal a tenth the size of the within-quarter noise. Whatever structural assumption I impose on the latent r-star state, the IS-curve likelihood does not have enough power to overrule it.
Bullock’s “a bit restrictive”
Resolving the indeterminacy requires going outside the model. The most useful piece of recent external information is what Governor Bullock said at the press conference following the May 2026 hike.
Bullock characterised 4.35 per cent as “a bit restrictive, but less restrictive than when 4.35 per cent was first reached 16 months ago, due to shifts in the neutral rate.” That sentence is structurally informative. It gives both a level check and a dynamics check.
On the level. With the cash rate at 4.35 per cent and the inflation target at 2.5 per cent, the real cash rate against target is 1.85 per cent. 'A bit restrictive' implies real cash sits slightly above r-star, putting r-star somewhere around 1.5 to 1.8 per cent in real terms. The level reading is partly stance language, since 'restrictive' in central-bank communication mixes positive and normative elements. Bullock is not formally estimating r-star.
On the dynamics. 'Less restrictive than 16 months ago, due to shifts in the neutral rate' is harder to explain away. The same nominal rate is being described as more restrictive then and less restrictive now, with the difference attributed to a shift in r-star. For that sentence to be coherent, r-star has to be a thing that moves, and the Governor has to be willing to say it has moved upward. That is a quantitative claim about r-star dynamics, not a rhetorical one, and it is the part of Bullock's statement the indeterminacy framework cannot ignore.
Cross-checking against the three approaches:
Only the yield-anchored estimate has shifted upward over the relevant window. Bond yields rose. Trend growth, the slow-moving structural object, cannot move by a few tenths of a percentage point in sixteen months. Quarterly GDP growth bounces around for all sorts of reasons, but the trend underneath it does not respond on that timescale, by construction and by every credible empirical measure. So Bullock's claim that r-star has shifted upward over sixteen months is one only a yield-anchored framework can produce. A growth-anchored framework cannot generate that shift, because the structural anchor does not move on that timescale.
The level reading then corroborates rather than independently confirms. The yield-anchored estimate at 1.5 per cent puts real cash 0.35 percentage points above r-star, mildly restrictive, consistent with Bullock's framing on both readings of "restrictive". The blend at 2.2 per cent implies real cash sits 0.35 percentage points below r-star, which would be accommodative on a descriptive reading and harder to reconcile with Bullock's stance language even on a normative one. The growth-anchored estimate at 2.6 per cent puts real cash 0.75 percentage points below r-star, which is hard to reconcile with Bullock's framing under any reading.
So the specification I previously called implausible, on the basis of its negative 2020 trough, is the specification that best fits how the RBA itself appears to think about r-star right now. This is uncomfortable. It is also informative.
The implication is that the RBA, whatever it says publicly about uncertainty around the neutral rate, is communicating in a way that requires a yield-anchored r-star to make sense of. The dynamics claim, that r-star has moved upward over the past sixteen months, is not something a growth-anchored framework can produce, because trend growth does not move that fast. That is actually consistent with how most central banks work: the operational definition of "what monetary policy has to compete with" is what the bond market is pricing, not what trend growth says. Bullock's wording is the closest thing to formal acknowledgement of that I have seen.
There is also a risk-management element to the May 2026 hike that the level reading does not capture. Core inflation (monthly trend) has been disinflating since October 2025, but the Iran war is pushing headline up through fuel and is a live risk for second-round effects on broader prices and on inflation expectations. A board that thinks 4.10 was already restrictive enough on r-star grounds might still hike to 4.35 to build a buffer against the war shock escalating. So 'a bit restrictive' is doing two jobs: telling us where the Board thinks neutral sits, and telling us where the Board wants policy positioned to absorb a possible second-round inflation event. The dynamics claim about r-star is the cleaner inference. The level claim is partly about insurance.
The chart shows annualised monthly growth smoothed with a Henderson 13-term moving average, which captures current price momentum without the twelve-month lag built into year-on-year measures. The trimmed mean and weighted median trends both turned in October 2025 and have continued down since. That said, the headline spike is worth watching if it produces second round effects in the core trends.
The post-GFC track record
The post-GFC era is the closest thing to an out-of-sample test of which approach is empirically more useful.
For a decade, real rates were near zero or negative across the developed world. Australian trend growth declined gently through the period but stayed well above 2.5 per cent. The growth-anchored view said r-star was somewhere between 2.5 and 3 per cent, which would have meant the prevailing real cash rate of zero or below was deeply stimulatory, with policy sitting more than two and a half percentage points below neutral. On that view, inflation should have surged. It instead drifted below target through most of the period.
The yield-anchored view said r-star was close to zero and the prevailing real cash rate was therefore roughly neutral. On that view, inflation should have been stable or slightly soft. It broadly was. The yield-anchored view was more consistent with the broad behaviour of inflation and policy than the growth-anchored view.
The blend therefore inherited part of the growth anchor’s difficulty in explaining the low-inflation 2010s, while still capturing some of the market signal. It was less wrong than the growth anchor, less right than the yield anchor.
This is not a knockdown argument. Low inflation through the 2010s does not uniquely validate a low r-star. The 2010s were a period of inflation expectations that had become well anchored, global disinflation in goods prices, ongoing labour market slack that the unemployment rate did not fully capture, wage-setting behaviour that responded slowly to tightness, fiscal policy choices, imported deflationary pressure from China, technology effects on retail prices, and central bank credibility built up over the previous two decades. Any of these could have helped keep inflation soft regardless of where the real rate sat relative to neutral. The growth-anchored view’s prediction failure is suggestive but not decisive.
What it is is a piece of evidence. Combined with Bullock’s framing of 4.35 per cent as “a bit restrictive,” there are two pieces of external evidence consistent with the yield-anchored reading: a fifteen-year period in which a yield-anchored r-star produced inflation predictions broadly aligned with outcomes, and a central bank communication that reads as an implicit yield-anchored neutral around 1.5 to 1.8 per cent real. Neither piece is decisive. Together they tilt the weight of evidence toward the bond market as the more useful proxy for the natural rate, at least under conditions like those of the past two decades.
A finding about Australian transmission
One result is worth highlighting because it is robust across all specifications. The IS curve coefficient on the real interest rate gap, the parameter that captures how strongly rate changes affect output through the standard textbook channel, sits at around minus 0.05 in every specification I tried. That is small, and it is constant across closed-economy and open-economy IS curves, across canonical HLW and the various blend variants, and across different identifying assumptions for r-star.
Adding the small-open-economy regressors that the literature recommends, terms of trade, the trade-weighted index, and a foreign demand proxy, does not change this. The rate channel through the IS curve is genuinely weak in Australian data, and no respecification of the IS curve makes it strong.
This is consistent with existing work on Australian monetary transmission, which emphasises housing, exchange rates, and cash flow channels rather than the standard interest-rate-to-investment story. The implication for the modelling is direct. If the IS curve has limited leverage on output through real rates, no r-star estimation methodology built around the IS curve can extract a confidently identified r-star from Australian macro data alone. The blend approach is the response, but it is a workaround for a property of the data, not a fix.
What this says about current policy
The cash rate is 4.35 per cent. Against the 2.5 per cent inflation target, the real cash rate is 1.85 per cent.
If you take the yield-anchored view, r-star is around 1.5 per cent and current policy is mildly restrictive. This matches Bullock’s framing and matches what the disinflation seems to be telling us. It also sits more comfortably with how the past fifteen years played out than the alternatives do.
If you take the blend view, r-star is around 2.2 per cent and current policy is mildly accommodative. This contradicts Bullock’s framing and contradicts the disinflation, except by appealing to lagged effects of past tightening.
If you take the growth-anchored view, r-star is around 2.6 per cent and current policy is substantially accommodative. This sits worst with both Bullock and the disinflation.
In nominal terms, with the 2.5 per cent inflation target, this gives a neutral cash rate of around 4.0 per cent on the yield-anchored view, around 4.7 per cent on the blend, and around 5.1 per cent on the growth-anchored view. The current cash rate of 4.35 per cent sits inside the union of those ranges. It is not unusual by the standards of the inflation-targeting era, where the cash rate spent most of the 1993 to 2008 period between 4 and 7 per cent. Whatever is going wrong or right with the Australian economy at the moment, it is not because the cash rate is in unprecedented territory.
What you cannot do, on the data inside the model alone, is pick a single nominal neutral rate to one decimal place and claim the data backs it. The data does not back any single number. The two pieces of external evidence, the fifteen-year track record and the RBA’s revealed reasoning, together support the yield-anchored view as the most defensible single position, but neither is decisive.
The honest position
R-star is useful as a concept. The IS curve intercept is something policy needs to be able to think about, and the Wicksellian natural rate has a long intellectual lineage that produces real insight. Abandoning the concept entirely would leave a hole that the alternatives do not fill.
R-star is also notoriously hard to estimate. The standard methodology fails identification on Australian data. Adding the obvious sources of identifying information either does not help or just relabels the bond yield. The principled blend gives credible numbers but does not actually identify r-star from the IS curve. It uses observable anchors and a weighting parameter that is itself weakly identified.
Macroeconomics is full of latent objects we cannot directly measure but that organise how we think about the economy. R-star, u-star, y-star: the natural rate of interest, NAIRU, potential output. None of them is observable. All of them are estimated with substantial uncertainty. All of them are essential to coherent policy thinking. If you reject one on the grounds of identification difficulty, consistency requires rejecting the new-Keynesian synthesis, and arguably most of mainstream macroeconomics with it.
The work is still worth doing. Even with the headline finding that the data is not identifying r-star from the IS curve alone, the model rules out a lot. It rules out a current cash rate that is extremely restrictive on any sensible reading. It rules out one that is extremely loose. It tells you the post-GFC decade really was unusual, and the post-COVID period really has seen a return toward more familiar dynamics in Australia, even if not in Europe. It supports the historical comparison, which says current rates are unremarkable by the standards of the inflation-targeting era as a whole.
That is what the model can deliver. Not a precise calibration of policy to a target gap. A useful directional judgement supported by transparent uncertainty, with the methodological commitments visible.
The cash rate at 4.35 per cent is not extreme. It sits within the range of plausible neutral estimates from the three approaches. Whether it is currently on the restrictive side, the neutral side, or the accommodative side depends on which Wicksellian anchor you commit to. The data inside the model does not commit you. The fifteen-year empirical track record and the most recent communication from the Governor both lean toward the yield-anchored view. If you take that view, current policy is mildly restrictive and the recent disinflation in core measures is consistent with that reading, contingent on the Iran war not delivering a second-round shock to expectations. That is the closest thing to a defensible single reading I can offer.
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