•  For a healthy economy, the inflation rate would neither rise nor fall in trend terms, and so the long-run average real interest rate would also be stable. It is this rate which is often referred to as the “neutral rate of interest”.
•  The actual real rate of interest would rise and fall as it responded to increasing and decreasing inflationary pressures in the economy. If the real rate of interest did not go up and down in response to these changing pressures, the underlying dynamics of the economy 1 would be unstable for the reasons I outlined in my recent Giblin Lecture.