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The Effect Of Labour Share On The Natural Rate Of Interest: Some Empirical Evidence

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  • Pedro Gomes
  • Pedro Bom
  • Pedro Leão

Abstract

Standard estimations of Taylor.s (1993) monetary policy rule assume that the natural real rate of interest can be regarded as constant. By contrast, based on Mankiew (2000) theory of Savers and Spenders, we argue that the natural rate is related to the distribution of income between the two types of agents. We show evidence from the U.S., based on a respecication of the Taylor rule proposed by Clarida et al. (2000), that the natural rate of is positively in.uenced by the long-run movements of the labour share in the national income. As the labour share has been falling since 1980s, our results indicate that the natural real interest rate fell from around 6% to around 2% in the beginnings of our decade.

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Paper provided by ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics] in its series Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] with number 026.

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Date of creation: 2005
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Handle: RePEc:anp:en2005:026

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