... eal interest rate has declined from around4% in the 1960s to less than 2% in 2004. In the model, the d ecline in the natural real inter est rate in the eu r o area is largely dueto a fall in the ... in part,relatedtotheevolutionoftherealinterestrategap. Inlinewiththishypothesiswefind that the real rate gap is also strongly and negatively correlated with the output gap. Next, w e investigate the leading indica ... positive output gap in the beginning of the 1990s, the output gap remained negative until the start of Stage T h ree of EMU . In ter estin gly, F igu re 5 show s that in ation began to decline almost...