Although the determinants of the natural rate of interest are the subject of considerable debate among academics, it is widely thought that the potential growth rate of the economy plays a major role.
Since the nominal policy interest rate has a lower bound of 0 percent, if the potential growth rate or inflation expectations decline, real interest rates remain high compared with the natural rate of interest and financial conditions cannot be sufficiently accommodative. 3 As a result, it becomes difficult to overcome deflation.