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The equilibrium interest rate: a measurement for Russia

Author

Listed:
  • Dmitry Kreptsev

    (Bank of Russia, Russian Federation)

  • Alexey Porshakov

    (Bank of Russia, Russian Federation)

  • Sergey Seleznev

    (Bank of Russia, Russian Federation)

  • Andrey Sinyakov

    (Bank of Russia, Russian Federation)

Abstract

The aim of this paper is to measure the equilibrium interest rate for Russia both in the short and long run, based on three definitions of the equilibrium interest rate. A general equilibrium model for the Russian economy is being built and gauged. In this real business cycle of a commodity-centred economy with investment, we find that short-run estimates come with very extended confidence intervals (approx. +/-10 pp). In the long run, equilibrium interest rates in the model are set by one of its equilibrium conditions, which in practice will often be applied discretely to find the equilibrium interest rate. This condition-based estimate comes very sensitive to unknown parameters, and is also very uncertain. Additionally, we use the general equilibrium model to study how the equilibrium interest rate reacts to changing oil prices, a rising global rate and growth in consumers’ propensity to save. These calculations complement with panel data-based calculations (those for the long-run equilibrium) and computation built on semi-structural methods (for the current equilibrium). Such estimates are also characterised by a high, for practical purposes, degree of uncertainty for the long-run equilibrium, with its point estimates equalling to 1.0% è 3.0%. The point estimate of the current equilibrium short interest rate based on semi-structural methods comes at the level of around 0.5%, and the one derived from the interest rate parity is 2.7%. The uncertainty in the measures of equilibrium interest rates calls for a central bank to apply robust monetary policy rules.

Suggested Citation

  • Dmitry Kreptsev & Alexey Porshakov & Sergey Seleznev & Andrey Sinyakov, 2016. "The equilibrium interest rate: a measurement for Russia," Bank of Russia Working Paper Series wps13, Bank of Russia.
    • Handle: RePEc:bkr:wpaper:wps13
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    Cited by:

    1. Yulia Ushakova & Dmitry Chernyadyev, 2017. "The effects of Financial Shock on Russian short-term equilibrium interest rates," Bank of Russia Working Paper Series note11, Bank of Russia.
    2. Clemens Grafe & Sara Grut & Lorenzo Rigon, 2018. "Neutral Interest Rates in CEEMEA - Moving in Tandem with Global Factors," Russian Journal of Money and Finance, Bank of Russia, vol. 77(1), pages 6-25, March.

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    More about this item

    Keywords

    equilibrium (natural) interest rate; real business cycle with investment model; potential GDP growth; uncovered interest rate parity; minor open economy of a commodity exporting country;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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