Part 4

How do I solve for the neutral rate, and what affects it? 

Like many other economic concepts, the neutral rate remains rooted in theory. Of course, the economy rarely chugs along in a textbook fashion. 

Here is how to think about it in terms of a math equation: 

Inflation target + real trend rate of economic growth = neutral rate

The Fed’s inflation target is at 2%, so that’s easy enough to plug in. But it gets tricky when trying to determine the economy’s long-term sustainable real growth rate, which is an estimated figure.&nb...

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