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Taylor-rule consistent estimates of the natural rate of interest

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  • Brand, Claus
  • Mazelis, Falk

Abstract

We estimate the natural rate of interest for the US and the euro area in a semi-structural model comprising a Taylor rule. Our estimates feature key elements of Laubach and Williams (2003), but are more consistent with using conventional policy rules: we model inflation to be stationary, with the output gap pinning down deviations of inflation from its objective (rather than relative to a random walk). We relax some constraints on the correlation of latent factor shocks to make the original unobserved-components framework more amenable to structural interpretation and to reduce filtering uncertainty. We show that resulting natural rate metrics are more consistent with estimates from structural models. JEL Classification: C11, E32, E43, E52

Suggested Citation

  • Brand, Claus & Mazelis, Falk, 2019. "Taylor-rule consistent estimates of the natural rate of interest," Working Paper Series 2257, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20192257
    Note: 92649
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Bayesian estimation; Beveridge-Nelson decomposition; equilibrium real rate; natural rate of interest; Taylor rule; unobserved components;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • 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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