Measuring the Natural Rate of Interest: A Note on Transitory Shocks
Kurt F. Lewis () and
Francisco Vazquez-Grande ()
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Kurt F. Lewis: Board of Governors of the Federal Reserve System (U.S.)
Francisco Vazquez-Grande: Board of Governors of the Federal Reserve System (U.S.)
No 2017-059, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (US)
We present evidence that the natural rate of interest is buffeted by both permanent and transitory shocks. We establish this result by estimating a benchmark model with Bayesian methods and loose priors on the unobserved drivers of the natural rate. When subject to transitory shocks, the median estimate for the U.S. economy is more procyclical, displays a less marked secular decline, and is therefore higher following the Great Recession than most estimates in the literature.
Keywords: Kalman filter; Monetary policy; Natural rate of interest; Pileup; Trend growth (search for similar items in EconPapers)
JEL-codes: C32 E43 E52 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2017-06, Revised 2018-08-07
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