The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges

Michael Kiley

No 2019-076, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Real interest rates have been persistently below historical norms over the past decade, leading economists and policymakers to view the equilibrium real interest rate as likely to be low for some time. Various definitions and approaches to estimating the equilibrium real interest rate are examined, including approaches based on the term-structure of interest rates and small macroeconomic models. The individual-country approaches common in the literature are extended to allow for global trend and cyclical factors. The analysis finds that global factors dominate the downward trend in the equilibrium interest rate across 13 advanced economies. A corollary of this finding is that the U.S. equilibrium rate may be substantially lower than estimated in U.S.-only studies. The analysis also highlights how the common global trend confounds empirical assessments of the determinants of movements in the equilibrium rate and the need to better integrate term-structure and macroeconomic approaches.

Keywords: Global Factors; Natural Rate; World Interest Rate (search for similar items in EconPapers)
Pages: 53 pages
Date: 2019-11
New Economics Papers: this item is included in nep-mac and nep-opm
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2019-76

DOI: 10.17016/FEDS.2019.076

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