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R-star wars: the phantom menace

James B. Bullard ()
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James B. Bullard: Federal Reserve Bank of St. Louis

Business Economics, 2018, vol. 53, issue 2, 60-65

Abstract: Abstract The natural real rate of interest has been on a declining path for the past 30 years. I present a regime-switching analysis of the natural rate, which suggests that the current low levels are likely to persist in the near future. I identify a high global demand for safe assets as the most important factor in keeping the natural rate low. I conclude that the current low levels of the policy rate are generally appropriate, with some upside risk, and that forward guidance should be characterized by a flat policy rate path.

Keywords: Natural real interest rate; Markov switching; Monetary policy rules (search for similar items in EconPapers)
JEL-codes: C24 E47 E58 (search for similar items in EconPapers)
Date: 2018
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