If monetary policy influences real interest rates even in the long run, then the concept of the neutral interest rate exists only in theory

The following model for the setting of the central bank’s key interest rate is widely used : the central bank’s interest rate is equal to the neutral real interest rate plus expected inflation and plus a term proportional to the difference between inflation or expected inflation and the central bank’s inflation target. In the long run, expected inflation is equal to the inflation target , and the neutral real interest rate is that which balances savings and investment (supply and demand for goods and services) in the long run when inflation is equal to expected inflation and target inflation. Th e question then concerns changes to the equilibrium between savings and investment. But empirical analysis shows that, even in the long run, the real interest rate depends heavily on monetary policy. There is therefore no neutral real interest rate (resulting from the real economic equilibrium) that determines the central bank’s interest rate; on the contrary, it is the central bank that determines the real long-term interest rate.