r* is the real interest rate level that brings actual economic activity in line with potential economic activity. r* is not directly observable and can only be estimated with some uncertainty. However, it is relatively well established in the literature, that r* has followed a declining trend over the past couple of decades.
Our estimate of r* in Denmark shows a decline since the mid-1990s by approximately 4 percentage points. This suggests that r* became negative during the financial crisis. It has remained substantially below the pre-crisis level ever since.