My colleague John Williams, president of the San Francisco Fed, along with Thomas Laubach, on the staff of the Board of Governors, has done pioneering work on the neutral rate (r*) that argues the longer-run neutral real rate depends on the economy’s potential growth rate, which varies over time, as well as other unobserved factors. As of the first quarter of 2016, the Laubach–Williams model implied a 0.2 percent neutral real rate.
Evan Koenig and Alan Armen at the Dallas Fed use movements in slack to help identify the neutral real rate. They focus on shorter-run r* and, rather than make r* a direct function of growth in potential output, Koenig and Armen draw on signals from the financial markets and changes in household wealth. They argue that wealth growth and long-term yields do a good job of picking up changes in growth prospects and capture movements in other r* determinants.
The Koenig–Armen model says that the short-run neutral real rate was negative 1.3 percent in the first quarter of 2016, about 1.5 percentage points below the latest Laubach–Williams estimate of the longer-run rate and only 15 basis points above the actual real rate. Policy was only modestly accommodative last quarter, according to Koenig–Armen.