The Mirage of Falling R-stars

Ales Bulir and Jan Vlcek

No 2024/161, IMF Working Papers from International Monetary Fund

Abstract: Was the recent decline in real interest rates driven by a diminishing natural real interest rate, or have we observed a long sequence of shocks that have pushed market rates below the equilibrium level? In this paper we show on a sample of 12 open economies that once we account for equilibrium real exchange rate appreciation/depreciation, the natural real interest rate in the 2000s and 2010s is no longer found to be declining to near or below zero. The explicit inclusion of equilibrium real exchange rate appreciation in the identification of the natural rate is the main deviation from the Laubach-Williams approach. On top of that, we use a full-blown semi-structural model with a monetary policy rule and expectations. Bayesian estimation is used to obtain parameter values for individual countries.

Keywords: r-star; zero lower bound; equilibrium real appreciation; Penn effect; HLW framework; open-economy extension; ales Bulfr; Time-Invariant Estimates; HLW estimate; Real interest rates; Real exchange rates; Central bank policy rate; Exchange rates; Exchange rate adjustments; Global (search for similar items in EconPapers)
Pages: 44
Date: 2024-07-26
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mon and nep-opm
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=552122 (application/pdf)

Related works:
Working Paper: The Mirage of Falling R-stars (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2024/161

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().