Natural real rates of interest across Euro area countries: Are R-stars getting closer together?

Tomas Reichenbachas (), Linas Jurkšas () and Rokas Kaminskas ()
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Tomas Reichenbachas: Bank of Lithuania
Linas Jurkšas: Bank of Lithuania
Rokas Kaminskas: Bank of Lithuania

No 24, Bank of Lithuania Discussion Paper Series from Bank of Lithuania

Abstract: Using two different methodologies, we estimate time-varying natural real rates of interest for a majority of euro area (EA) countries, including Lithuania. We find that natural real rates have been declining, particularly since 2008, albeit to different extent across EA countries. Lower rates could (at least partly) be explained by lower productivity and population growth. In line with previous literature, we find evidence of a substantial dispersion of the natural interest rate across EA economies. This became especially evident during the financial crisis of 2008-2009 and the sovereign debt crisis of 2010-2012, while estimates of natural rates tend to converge during "calm" periods. Estimates of natural rates for Lithuania were significantly above the estimates of core EA countries over 2002-2008, but this has changed after the crisis. From 2011 the estimates of natural rates for Lithuania tend to be close to the average for EA countries.

Keywords: LEuro area; natural rate of interest; common monetary policy; fragmentation (search for similar items in EconPapers)
JEL-codes: C32 E32 E43 E52 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2021-03-10
New Economics Papers: this item is included in nep-eec, nep-mac, nep-mon, nep-opm and nep-tra
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