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Navigating by the Stars: The Natural Rate as Economic Forecasting Tool

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  • Alan Armen
  • Evan F. Koenig

Abstract

Fed policymakers must assess the stance of monetary policy each time they decide whether the target federal funds rate should be changed. Several different benchmark, or ?natural,? interest rates have been suggested for this purpose. The gap between the target funds rate and the natural rate should, in principle, help forecast real economic activity and inflation.

Suggested Citation

  • Alan Armen & Evan F. Koenig, 2017. "Navigating by the Stars: The Natural Rate as Economic Forecasting Tool," Economic Letter, Federal Reserve Bank of Dallas, vol. 12(2), pages 1-4, February.
  • Handle: RePEc:fip:feddel:00042
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    Cited by:

    1. Del Negro, Marco & Giannone, Domenico & Giannoni, Marc P. & Tambalotti, Andrea, 2019. "Global trends in interest rates," Journal of International Economics, Elsevier, vol. 118(C), pages 248-262.
    2. Arto Kovanen, 2019. "Perspectives From the Past for the Federal Reserve¡¯s Monetary Policy and Communication," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(1), pages 31-51, January.
    3. Arto Kovanen, 2019. "Wage Growth Puzzle and Capacity Utilization," Applied Economics and Finance, Redfame publishing, vol. 6(2), pages 15-31, March.

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