This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

The predictive content of the real interest rate gap for macroeconomic variables in the euro area

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Jean-Stéphane MESONNIER (Banque de France)

Additional information is available for the following registered author(s):

Abstract

The real interest rate gap -IRG-, i.e. the gap between the short term real interest rate and its “natural†level, is a theoretical concept of potential policy relevance for central banks, at least to evaluate the monetary policy stance, at best as a guideline for policy moves. This paper aims at clarifying the practical relevance of IRG indicators for monetary policy. To this end, it provides an empirical assessment of the usefulness of various univariate and multivariate estimates of the real IRG for predicting inflation, real activity and real credit growth in the euro area. On the basis of out-of-sample evidence using real-time data, I find that IRG measures are globally of little help to improve our knowledge of future inflation in the euro area. By contrast, some of the estimated IRG measures exhibit a significant predictive power for future real activity, in line with the intuition from a traditional IS curve, as well as for credit growth. Nevertheless, in most cases, the forecasting models that include estimated IRG do not outperform a simpler AR model augmented with the first difference of the nominal interest rate

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://repec.org/mmf2006/up.10884.1145632533.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2006 with number 102.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 02 Feb 2007
Date of revision:
Handle: RePEc:mmf:mmfc06:102

Contact details of provider:
Web page: http://www.essex.ac.uk/afm/mmf/index.html

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords: natural rate of interest; monetary policy; forecasting;

Other versions of this item:

Find related papers by JEL classification:
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Silvia Fabiani & Ricardo Mestre, 2004. "A system approach for measuring the euro area NAIRU," Empirical Economics, Springer, vol. 29(2), pages 311-341, 05. [Downloadable!] (restricted)
    Other versions:
  2. Jesús Cuaresma & Ernest Gnan & Doris Ritzberger-Gruenwald, 2004. "Searching for the natural rate of interest: a euro area perspective," Economic Change and Restructuring, Springer, vol. 31(2), pages 185-204, June. [Downloadable!] (restricted)
  3. Kunst, Robert M., 2003. "Testing for Relative Predictive Accuracy: A Critical Viewpoint," Economics Series 130, Institute for Advanced Studies. [Downloadable!]
  4. Thomas Laubach, 2001. "Measuring The NAIRU: Evidence From Seven Economies," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 218-231, May. [Downloadable!] (restricted)
    Other versions:
  5. Halbert White, 2000. "A Reality Check for Data Snooping," Econometrica, Econometric Society, vol. 68(5), pages 1097-1126, September.
  6. King, Robert G. & Rebelo, Sergio T., 1993. "Low frequency filtering and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 207-231. [Downloadable!] (restricted)
    Other versions:
  7. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November. [Downloadable!] (restricted)
    Other versions:
  8. Julien Garnier & Bjørn-Roger Wilhelmsen, 2005. "The natural real interest rate and the output gap in the euro area: A joint estimation," Working Paper 2005/14, Norges Bank. [Downloadable!]
    Other versions:
  9. Croushore, Dean & Stark, Tom, 2001. "A real-time data set for macroeconomists," Journal of Econometrics, Elsevier, vol. 105(1), pages 111-130, November. [Downloadable!] (restricted)
    Other versions:
  10. Le Bihan, Herve & Sedillot, Franck, 2000. "Do core inflation measures help forecast inflation?: Out-of-sample evidence from French data," Economics Letters, Elsevier, vol. 69(3), pages 261-266, December. [Downloadable!] (restricted)
  11. Jon Faust & Dale W. Henderson, 2004. "Is inflation targeting best-practice monetary policy?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 117-144. [Downloadable!]
  12. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October. [Downloadable!] (restricted)
    Other versions:
  13. Kamada, Koichiro, 2005. "Real-time estimation of the output gap in Japan and its usefulness for inflation forecasting and policymaking," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 309-332, December. [Downloadable!] (restricted)
  14. Andrea Nobili, 2005. "Forecasting Output Growth And Inflation In The Euro Area: Are Financial Spreads Useful?," Temi di discussione (Economic working papers) 544, Bank of Italy, Economic Research Department. [Downloadable!]
  15. Athanasios Orphanides & Simon van Norden, 2002. "The Unreliability of Output-Gap Estimates in Real Time," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 569-583, 07. [Downloadable!] (restricted)
    Other versions:
  16. Jack McKeown & Jens McKeown, 2004. "The informational content of empirical measures of real interest rate and output gaps for the United Kingdom," Money Macro and Finance (MMF) Research Group Conference 2003 62, Money Macro and Finance Research Group. [Downloadable!]
  17. Gerlach, Stefan & Smets, Frank, 1999. "Output gaps and monetary policy in the EMU area1," European Economic Review, Elsevier, vol. 43(4-6), pages 801-812, April. [Downloadable!] (restricted)
  18. Taylor, Mark P, 1999. "Real Interest Rates and Macroeconomic Activity," Oxford Review of Economic Policy, Oxford University Press, vol. 15(2), pages 95-113, Summer.
  19. Clark, Todd E. & McCracken, Michael W., 2006. "The Predictive Content of the Output Gap for Inflation: Resolving In-Sample and Out-of-Sample Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1127-1148, August. [Downloadable!] (restricted)
    Other versions:
  20. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2003. "Do financial variables help forecasting inflation and real activity in the euro area?," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1243-1255, September. [Downloadable!] (restricted)
    Other versions:
  21. Jesús Crespo Cuaresma & Ernest Gnan & Doris Ritzberger-Grünwald, 2005. "The Term Structure as a Predictor of Real Activity and Inflation in the Euro Area: A Reassessment," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(2), pages 318-342, July. [Downloadable!] (restricted)
    Other versions:
  22. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    Other versions:
  23. Wicksell, Knut, 1907. "The Influence of the Rate of Interest on Prices," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 17, pages 213-220. [Downloadable!]
  24. Sergio Nicoletti Altimari, 2001. "Does money lead inflation in the euro area?," Working Paper Series 063, European Central Bank. [Downloadable!]
  25. Orphanides, Athanasios & van Norden, Simon, 2005. "The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 583-601, June.
    Other versions:
  26. Jean-Stephane Mesonnier & Jean-Paul Renne, 2004. "A Time Varying Natural Rate of Interest for the Euro Area," Money Macro and Finance (MMF) Research Group Conference 2004 42, Money Macro and Finance Research Group. [Downloadable!]
    Other versions:
  27. Jesús Cuaresma & Ernest Gnan & Doris Ritzberger-Gruenwald, 2004. "Searching for the natural rate of interest: a euro area perspective," Empirica, Springer, vol. 31(2), pages 185-204, June. [Downloadable!] (restricted)
    Other versions:
  28. Claudio E. V. Borio & Wiliam English & Andrew Filardo, 2003. "A tale of two perspectives: old or new challenges for monetary policy?," BIS Working Papers 127, Bank for International Settlements. [Downloadable!]
  29. 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.
    Other versions:
  30. Thomas Laubach & John C. Williams, 2003. "Measuring the Natural Rate of Interest," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1063-1070, November. [Downloadable!] (restricted)
    Other versions:
  31. Harvey, David I & Leybourne, Stephen J & Newbold, Paul, 1998. "Tests for Forecast Encompassing," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(2), pages 254-59, April.
  32. Nicola Giammarioli & Natacha Valla, 2003. "The natural real rate of interest in the Euro area," Working Paper Series 233, European Central Bank. [Downloadable!]
  33. Gabriel Fagan & Jérôme Henry & Ricardo Mestre, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 42, European Central Bank. [Downloadable!]
  34. Christina Gerberding & Franz Seitz & Andreas Worms, 2005. "How the Bundesbank really conducted monetary policy," Computing in Economics and Finance 2005 60, Society for Computational Economics.
    Other versions:
  35. Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05. [Downloadable!] (restricted)
    Other versions:
  36. Jon Faust & Dale W. Henderson, 2004. "Is inflation targeting best-practice monetary policy?," International Finance Discussion Papers 807, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  37. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
    Other versions:
  38. Marta Manrique & José Manuel Marqués, 2004. "An empirical approximation of the natural rate of interest and potential growth," Banco de España Working Papers 0416, Banco de España. [Downloadable!]
  39. Claudio Borio & William English & Andrew Filardo, 2003. "A tale of two perspectives: old or new challenges for monetary policy?," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 1-59 Bank for International Settlements. [Downloadable!]
Full references

Statistics
Access and download statistics

Did you know? Data contributors to RePEc receive monthly emails with details about downloads and abstract views of their works.

This page was last updated on 2009-11-13.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.