Estimates of the Natural Rate of Interest and the Stance of Monetary Policies: A Critical Assessment

Enrico Levrero

International Journal of Political Economy, 2021, vol. 50, issue 1, 5-27

Abstract: By focusing on the literature on the estimates of the natural rate of interest, this paper critically analyses the modern practice of identifying the benchmark rate of monetary policy with an equilibrium or neutral interest rate reflecting “fundamental forces” unaffected by monetary factors. After briefly mentioning the determinants of the natural rate of interest in the New Keynesian models, the paper discusses the different notions of it that we find in these models and the problems encountered when the natural rate is estimated. It states that these problems are not only related to the difficulties in distinguishing the kind and persistency of economic shocks, but pertain to theory, namely to model specification and the alleged independence of the average or normal interest rate from monetary policy. Following Keynes’s suggestion regarding the monetary nature of interest rates, some final remarks will be advanced on their effects on prices and income distribution as well as on the objectives and stance of monetary policies

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1080/08911916.2021.1894829 (text/html)
Access to full text is restricted to subscribers.

Related works:
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:mes:ijpoec:v:50:y:2021:i:1:p:5-27

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/MIJP20

DOI: 10.1080/08911916.2021.1894829

Access Statistics for this article

More articles in International Journal of Political Economy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().