EconPapers    
Economics at your fingertips  
 

On natural interest rate volatility

Edouard Challe and Mykhailo Matvieiev

European Economic Review, 2024, vol. 167, issue C

Abstract: Episodes of low natural interest rates, even transitory, pose a challenge to monetary policy, by possibly causing the effective lower bound (ELB) on the policy rate to bind. Those episodes are more likely to occur not only when the natural rate is low on average but also when fluctuations around its average level are large. We study the responsiveness of the natural interest rate to structural aggregate shocks affecting the aggregate supply of and demand for savings. Using a quantitative overlapping-generations model, we trace back this responsiveness to the slopes of aggregate savings supply and demand curves and argue that both curves have likely flattened over the past four decades in the US This implies a greater sensitivity of the natural interest rate to structural shocks affecting the supply of and demand for aggregate savings — making it more likely, all else equal, that it fall into negative territory.

Keywords: Natural interest rate; Intertemporal income effects; Overlapping-generations (search for similar items in EconPapers)
JEL-codes: E21 E25 E32 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292124001259
Full text for ScienceDirect subscribers only

Related works:
Working Paper: On Natural Interest Rate Volatility (2024) Downloads
Working Paper: On Natural Interest Rate Volatility (2024) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:167:y:2024:i:c:s0014292124001259

DOI: 10.1016/j.euroecorev.2024.104796

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-19
Handle: RePEc:eee:eecrev:v:167:y:2024:i:c:s0014292124001259