The natural rate of interest in a nonlinear DSGE model

Yasuo Hirose and Takeki Sunakawa

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper investigates how and to what extent nonlinearity, including the zero lower bound on the nominal interest rate, affects the estimates of the natural rate of interest in a dynamic stochastic general equilibrium model with sticky prices and wages. We find that the estimated natural rate of interest in a nonlinear model is substantially different from that in its linear counterpart because of a contractionary effect of the zero lower bound, and that other nonlinearities such as price and wage dispersion, from which a linear model abstracts, play a minor role in identifying the natural rate.

Keywords: Natural rate of interest; Nonlinearity; Zero lower bound; Particle filter (search for similar items in EconPapers)
JEL-codes: C32 E31 E43 E52 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2017-05
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: The Natural Rate of Interest in a Non-linear DSGE Model (2023)
Working Paper: The Natural Rate of Interest in a Nonlinear DSGE Model (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2017-38

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