The evolution of the natural rate of interest: evidence from the Scandinavian countries

Hanna Armelius, Martin Solberger, Erik Spånberg () and Pär Österholm
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Erik Spånberg: Stockholm University

Empirical Economics, 2024, vol. 66, issue 4, No 7, 1633-1659

Abstract: Abstract In this paper, the natural rate of interest in Denmark, Norway and Sweden is estimated. This is done by augmenting the Laubach and Williams (Rev Econ Stat 85:1063–1070, 2003) framework with a dynamic factor model linked to economic indicators––a modelling choice which allows us to better identify business cycle fluctuations. We estimate the model using Bayesian methods on data ranging from 1990Q1 to 2022Q4. The results indicate that the natural rate has declined substantially and in all countries is at a low level at the end of the sample.

Keywords: Monetary policy; Business cycle; Bayesian filter; Dynamic factor model (search for similar items in EconPapers)
JEL-codes: E31 E43 E52 (search for similar items in EconPapers)
Date: 2024
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Working Paper: The Evolution of the Natural Rate of Interest – Evidence from the Scandinavian Countries (2023)
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DOI: 10.1007/s00181-023-02503-w

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