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Taylor-rule consistent estimates of the natural rate of interest

Claus Brand () and Falk Mazelis

No 2257, Working Paper Series from European Central Bank

Abstract: We estimate the natural rate of interest for the US and the euro area in a semi-structural model comprising a Taylor rule. Our estimates feature key elements of Laubach and Williams (2003), but are more consistent with using conventional policy rules: we model inflation to be stationary, with the output gap pinning down deviations of inflation from its objective (rather than relative to a random walk). We relax some constraints on the correlation of latent factor shocks to make the original unobserved-components framework more amenable to structural interpretation and to reduce filtering uncertainty. We show that resulting natural rate metrics are more consistent with estimates from structural models. JEL Classification: C11, E32, E43, E52

Keywords: Bayesian estimation; Beveridge-Nelson decomposition; equilibrium real rate; natural rate of interest; Taylor rule; unobserved components (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Date: 2019-03
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20192257

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