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National natural rates of interest and the single monetary policy in the Euro Area

Sebastien Fries, Jean-Stéphane Mésonnier (), Sarah Mouabbi () and Jean-Paul Renne

Working papers from Banque de France

Abstract: Using a semi-structural approach, we jointly estimate time-varying national natural real rates of interest for the largest four economies of the Euro area over 1999-2016 and discuss the associated challenges for the single monetary policy. We find evidence of an increased dispersion of real equilibrium rates across major Euro area economies during the Euro area sovereign debt crisis. This dispersion translated into significantly diverging national real interest rate gaps, a synthetic metrics of the perceived monetary policy stance, between core and Southern countries. Real interest rate gaps have nonetheless converged towards zero in all four economies as of 2014, suggesting that it took the acceleration of unconventional policies since mid-2013 to eventually restore the conditions for a really common monetary policy in the Euro area.

Keywords: Euro area countries; natural rate of interest; common monetary policy; fragmentation (search for similar items in EconPapers)
JEL-codes: C32 E32 E43 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:611

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