Riders on the Storm

Alan Taylor and Oscar Jorda

No 13978, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Interest rates in major advanced economies have drifted down and in greater unison over the past few decades. A country’s rate of interest can be thought of as reflecting movements in the global neutral rate of interest, the domestic neutral rate, and the stance of monetary policy. Only the latter is controlled by the central bank. Estimates from a state space New Keynesian model show that central bank policy explains less than half of the variation in interest rates. The rest of the time, the central bank is catching up to trends dictated by productivity growth, demography, and other factors outside of its control.

Keywords: Neutral rate of interest; Monetary policy stance; State-space model; Kalman filter (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 F36 N10 (search for similar items in EconPapers)
Date: 2019-09
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
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Citations: View citations in EconPapers (9)

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