Interest rate gaps in an uncertain global context: why “too” low (high) for “so” long?

Luca Agnello (), Vitor Castro and Ricardo Sousa
Additional contact information
Luca Agnello: University of Palermo

Empirical Economics, 2023, vol. 64, issue 2, No 1, 539-565

Abstract: Abstract We study the behaviour of real interest rate gaps—i.e. periods of real interest rates above (below) the natural interest rate—and link their length with a set of key observable determinants. Using quarterly data for 13 OECD countries over (close to) the last 60 years, we find that global risk-taking, CPI inflation, (un)conventional monetary policy, and income redistribution crucially shape the duration of both events. However, while labour-related supply-side factors appear to affect the length of positive interest rate gaps, the adoption of an inflation targeting regime and the current account balance seem to explain the duration of negative interest rate gaps. Our results suggest that the “normalisation” of the conduct of monetary policy is likely to be very gradual, and subject to spikes in uncertainty and financial markets’ volatility.

Keywords: Natural interest rate; Weibull model; Kalman filter; Global and domestic factors; Economic and monetary conditions and supply-side; Savings-glut; Inequality (search for similar items in EconPapers)
JEL-codes: C32 E43 E44 E52 O40 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s00181-022-02265-x Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:empeco:v:64:y:2023:i:2:d:10.1007_s00181-022-02265-x

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-022-02265-x

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().