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The Rise and Fall of the Natural Interest Rate

Gabriele Fiorentini (), Alessandro Galesi (), Pérez-Quirós, Gabriel and Enrique Sentana ()
Authors registered in the RePEc Author Service: Gabriel Perez Quiros

No 13042, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We document a rise and fall of the natural interest rate (r*) for several advanced economies, which starts increasing in the 1960's and peaks around the end of the 1980's. We reach this conclusion after showing that the Laubach and Williams (2003) model cannot estimate r* accurately when either the IS curve or the Phillips curve is flat. In those empirically relevant situations, a local level specification for the observed interest rate can precisely estimate r*. An estimated Panel ECM suggests that the temporary demographic effect of the young baby-boomers mostly accounts for the rise and fall.

Keywords: demographics; Kalman filter; Natural rate of interest; observability (search for similar items in EconPapers)
JEL-codes: C18 C32 E43 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ets, nep-mac and nep-mon
Date: 2018-07
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Working Paper: The rise and fall of the natural interest rate (2018) Downloads
Working Paper: The Rise and Fall of the Natural Interest Rate (2018) Downloads
Working Paper: The Rise and Fall of the Natural Interest Rate (2018) Downloads
Working Paper: The Rise and Fall of the Natural Interest Rate (2018) Downloads
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