Measuring the natural rate of interest: International trends and determinants

Holston, Kathryn; Laubach, Thomas; Williams, John C.

doi:10.1016/j.jinteco.2017.01.004

Cited by 568 publications

(559 citation statements)

References 23 publications

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“…For future research, our methods could also be expanded along an international dimension. With a significant degree of capital mobility, the natural rate will depend on global saving and investment, so the joint modeling of inflation-indexed bonds in several countries could be informative (see Holston, Laubach, and Williams 2017 for an international discussion of the natural rate). Finally, our measure could be incorporated into an expanded joint macroeconomic and finance analysisparticularly with an eye towards further understanding the determinants of the lower new normal for interest rates.…”

Section: Resultsmentioning

confidence: 99%

" A New Normal for Interest Rates? Evidence from Inflation-Indexed Debt"

Christensen¹,

Rudebusch²

2018

ERWP

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Researchers have debated the extent of the decline in the steady-state short-term real interest rate-that is, in the so-called equilibrium or natural rate of interest. We examine this issue using a dynamic term structure finance model estimated directly on the prices of individual inflation-indexed bonds with adjustments for real term and liquidity risk premiums. Our methodology avoids two pitfalls of previous macroeconomic analyses: structural breaks at the zero lower bound and potential misspecification of output and inflation dynamics. We estimate that the equilibrium real rate has fallen about 2 percentage points and appears unlikely to rise quickly.JEL Classification: C32, E43, E52, G12

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Section: Resultsmentioning

confidence: 99%

" A New Normal for Interest Rates? Evidence from Inflation-Indexed Debt"

Christensen¹,

Rudebusch²

2018

ERWP

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“…The baseline specification is identical to the model estimated in Holston et al (2017). Similarly,r ≡ r − r * , where r is the real short-term interest rate and r * is the natural rate of interest.…”

Section: The R * Modelmentioning

confidence: 99%

“…The data used in this analysis is the same as the US data used in Holston et al (2017), and it is transformed in the same way. The sample runs from 1960:Q1 to 2017:Q2.…”

Section: Data and Estimationmentioning

confidence: 99%

“…We estimate the model in two ways, using Bayesian methods under loose priors and by maximum likelihood as in Holston et al (2017). We see the three-stage MLE process as a way of choosing a specific (and asymptotically motivated) degenerate implicit prior over ratios of the volatilities: g ≡ 5 4 and z ≡ a r 3 1 .…”

Section: Data and Estimationmentioning

confidence: 99%

“…5 The priors on the standard deviations of the unobserved shock processes play a critical role and we choose marginal priors to be uniform between 0 and 5, in contrast to the common usage of inverse gamma priors in the literature. 3 As in Holston et al (2017), we use the data from 1960 to construct the initial conditions from which we begin to estimate the unobserved components of r * , so our estimation begins in 1961. To avoid the pileup problem we restrict g and z to take values in [0.01, 5], which represents much less a priori certainty than previous studies.…”

Section: Prior Distributionsmentioning

confidence: 99%

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Measuring the natural rate of interest: A note on transitory shocks

Lewis

Vazquez-Grande

2018

J of Applied Econometrics

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Summary We present evidence that the natural rate of interest is buffeted by both permanent and transitory shocks. We establish this result by estimating a benchmark model with Bayesian methods and loose priors on the unobserved drivers of the natural rate. When subject to transitory shocks, the median estimate for the US economy is more procyclical, displays a less marked secular decline, and is therefore higher following the Great Recession than most estimates in the literature.

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Assessing uncertainty in the natural rate of interest: Info‐gap as guide for monetary policy in the euro area

Ben‐Haim

End

2020

Int. J Fin Econ

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In this paper, we assume that the natural rate of interest is fundamentally uncertain. Based on a small-scale macroeconomic model, info-gap theory is used to rank different monetary policy strategies in terms of their robustness against this uncertainty. Applied to the euro area, we find that an inert or patient monetary strategy is more robust to natural rate uncertainty than a strategy that follows an estimated Taylor rule. An actively responsive monetary strategy is least robust. Our analysis presents a methodology that is applicable in a wide range of policy analyses under deep uncertainty.

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Measuring the natural rate of interest: International trends and determinants

Cited by 568 publications

References 23 publications

" A New Normal for Interest Rates? Evidence from Inflation-Indexed Debt"

" A New Normal for Interest Rates? Evidence from Inflation-Indexed Debt"

Measuring the natural rate of interest: A note on transitory shocks

Assessing uncertainty in the natural rate of interest: Info‐gap as guide for monetary policy in the euro area

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