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What is the neutral real interest rate, and how can we use it?

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  • Joanne Archibald
  • Leni Hunter

    (Reserve Bank of New Zealand)

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    Abstract

    This article sets out the Reserve Bank's conception of the "neutral real interest rate", and identifies factors that influence its level. These factors provide a starting point for thinking about what might cause the neutral real interest rate to change over time, or differ across countries. We consider the uses and limitations of neutral real interest rates in answering some of the questions that are relevant to monetary policy, and present a range of estimates of the neutral real interest rate for New Zealand.

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    File URL: http://www.rbnz.govt.nz/research_and_publications/reserve_bank_bulletin/2001/2001sep64_3ArchibaldHunter.pdf
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    Bibliographic Info

    Article provided by Reserve Bank of New Zealand in its journal Reserve Bank of New Zealand Bulletin.

    Volume (Year): 64 (2001)
    Issue (Month): (September)
    Pages:

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    Handle: RePEc:nzb:nzbbul:september2001:2

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    References

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    1. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, December.
    2. Meredith Beechey & Nargis Bharucha & Adam Cagliarini & David Gruen & Christopher Thompson, 2000. "A Small Model of the Australian Macroeconomy," RBA Research Discussion Papers rdp2000-05, Reserve Bank of Australia.
    3. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
    4. Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
    5. Christian Hawkesby & Christie Smith & Christine Tether, 2000. "New Zealand's currency risk premium," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 63, September.
    6. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
    7. Katharine S. Neiss and Edward Nelson, 2001. "The Real Interest Rate Gap as an Inflation Indicator," Computing in Economics and Finance 2001 145, Society for Computational Economics.
    8. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    9. Allsopp, Christopher & Glyn, Andrew, 1999. "The Assessment: Real Interest Rates," Oxford Review of Economic Policy, Oxford University Press, vol. 15(2), pages 1-16, Summer.
    10. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-80, December.
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    Cited by:
    1. Rafael Cavalcanti De Araújo & Cleomar Gomes Da Silva, 2014. "The Neutral Interest Rate And The Stance Of Monetary Policy In Brazil," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41th Brazilian Economics Meeting] 051, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    2. Michal Brzoza-Brzezina, 2004. "The Information Content of the Natural Rate of Interest: The Case of Poland," Macroeconomics 0402007, EconWPA.
    3. Alberto Humala & Gabriel Rodríguez, 2011. "Estimation Of A Time Varying Natural Interest Rate For Peru," Documentos de Trabajo 2011-316, Departamento de Economía - Pontificia Universidad Católica del Perú.
    4. Mesonnier, Jean-Stephane & Renne, Jean-Paul, 2007. "A time-varying "natural" rate of interest for the euro area," European Economic Review, Elsevier, vol. 51(7), pages 1768-1784, October.
    5. Roman Horváth, 2007. "Estimating Time-Varying Policy Neutral Rate in Real Time," Working Papers IES 2007/01, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jan 2007.
    6. Olivier Basdevant & David Hargreaves, 2003. "Modelling structural change: the case of New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2003/03, Reserve Bank of New Zealand.
    7. Anne-Marie Brook & Özer Karagedikli & Dean Scrimgeour, 2002. "An optimal inflation target for New Zealand: lessons from the literature," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 65, September.
    8. W A Razzak, 2002. "Monetary policy and forecasting inflation with and without the output gap," Reserve Bank of New Zealand Discussion Paper Series DP2002/03, Reserve Bank of New Zealand.
    9. Michał Brzoza-Brzezina, 2002. "Estimating the Natural Rate of Interest: A SVAR Approach," National Bank of Poland Working Papers 27, National Bank of Poland, Economic Institute.
    10. Roman Horvath, 2007. "The Time-Varying Policy Neutral Rate in Real Time: A Predictor for Future Inflation?," Working Papers 2007/4, Czech National Bank, Research Department.
    11. Nils Björksten & Özer Karagedikli, 2003. "Neutral real interest rates revisited," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 66, pages 11, September.
    12. Chris Plantier & Dean Scrimgeour, 2002. "The Taylor Rule and its relevance to New Zealand monetary policy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 65, March.
    13. Olivier Basdevant & Nils Björksten & Özer Karagedikli, 2004. "Estimating a time varying neutral real interest rate for New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP 2004/01, Reserve Bank of New Zealand.

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