Estimating the natural rates in a simple New Keynesian framework

Hilde Bjørnland (), Kai Leitemo and Junior Maih

No 2007/10, Working Paper from Norges Bank

Abstract: The time-varying natural rate of interest and output and the implied mediumterm inflation target for the US economy are estimated over the period 1983-2005. The estimation is conducted within the New-Keynesian framework using Bayesian and Kalman-filter estimation techniques. With the model-consistent estimate of the output gap, we get a small weight on the backward-looking component of the New-Keynesian Phillips curve – similar to what is obtained in studies which use labor share of income as a driver for inflation (e.g., Galì et al., 2001, 2003). The turning points of the business cycle are nevertheless broadly consistent with those of CBO/NBER. We find considerable variation in the natural rate of interest while the inflation target has been close to 2% over the last decade.

Keywords: Natural rate of interest; natural rate of output; New-Keynesian model; inflation target. (search for similar items in EconPapers)
JEL-codes: C51 E32 E37 E52 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2008-01-11
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Estimating the natural rates in a simple New Keynesian framework (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2007_10

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