Taylor-rule consistent estimates of the natural rate of interest
Claus Brand () and
No 2257, Working Paper Series from European Central Bank
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)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20192257
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