Natural rates across the Atlantic
Stefano Neri () and
Andrea Gerali ()
Journal of Macroeconomics, 2019, vol. 62, issue C
A closed-economy medium-scale model is estimated for the United States and the euro-area to assess the current level of the natural rate of interest and shed light on its drivers over the last decades. The model features a rich set of shocks that bear some connection with the explanations put forward in the literature to explain the secular downward trend in interest rates. The analysis shows that the natural rate has declined over the past decades, contributing to lowering nominal and real rates. Risk premium shocks, short-cut for changes in agents’ preference for safe assets, have been the main driver in the euro area. In the United States, shocks to the efficiency of investment, which may capture the functioning of the financial sector, and to the risk premium have played a major role. These differences between the two economies underscore the importance of adopting a structural model with a rich stochastic structure.
Keywords: Natural rate of interest; Monetary policy; DSGE model; Bayesian methods (search for similar items in EconPapers)
JEL-codes: C51 E32 E43 E52 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Natural rates across the Atlantic (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:62:y:2019:i:c:s0164070417304652
Access Statistics for this article
Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos
More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().