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The role of the natural rate of interest in monetary policy

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Author Info
Jeffery D. Amato (Goldman Sachs International)
Abstract

This paper examines the role of the natural rate of interest in the conduct of monetary policy. The natural rate figures prominently in many theories of the business cycle and of inflation fluctuations, and therefore has the potential to play a key role in monetary policy given the current mandates of many central banks. However, the presence of financial imperfections and measurement uncertainty draw into question whether estimates of the natural rate can be reliable indicators of excess demand pressures. Natural rate-based theories may, nonetheless, provide useful guidance in the formulation of desirable monetary policies.

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Publisher Info
Paper provided by Bank for International Settlements in its series BIS Working Papers with number 171.

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Length: 24 pages
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:bis:biswps:171

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Related research
Keywords: real interest rate; interest rate rules; Wicksell; New Keynesian models; financial imperfections;

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Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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  1. Ladislav Wintr & Paolo Guarda & Abdelaziz Rouabah, 2005. "Estimating the natural interest rate for the euro area and Luxembourg," BCL working papers 15, Central Bank of Luxembourg. [Downloadable!]
  2. 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. [Downloadable!]
  3. Juan José Echavarría & Enrique López Enciso & Martha Misas Arango & Juana Tellez Corredor, 2006. "La Tasa de Interés Natural en Colombia," BORRADORES DE ECONOMIA 003088, BANCO DE LA REPÚBLICA. [Downloadable!]
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  4. Paulo Chananeco F. de Barcellos Neto & Marcelo Savino Portugal, 2006. "The Natural Rate Of Interest In Brazil Between 1999 And 2005," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 84, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  5. Ernest Gnan & Doris Ritzberger-Grünwald, 2005. "The Natural Rate of Interest — Concepts and Appraisal for the Euro Area," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 29-47, January 2. [Downloadable!]
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