Dynamics of the natural rate of interest and monetary policy

Karen Davtyan

Finance Research Letters, 2025, vol. 72, issue C

Abstract: This paper studies the relation between the monetary policy rate and the natural rate of interest in the euro area and the United States across the periods of conventional monetary policy (CMP) and unconventional monetary policy (UMP). The unobserved time series of the natural rate of interest is estimated at the monthly frequency at which the relation between the policy rate and the natural rate is evaluated. The results indicate that the dynamics of the policy rate was positively and significantly related to the variations in the natural rate during the CMP period. The relation twisted during the UMP period.

Keywords: Monetary policy; Monthly estimates; Natural rate of interest; Zero lower bound (search for similar items in EconPapers)
JEL-codes: C22 C32 E43 E52 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:72:y:2025:i:c:s1544612324015046

DOI: 10.1016/j.frl.2024.106475

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