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Estimating a time varying neutral real interest rate for New Zealand

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Author Info
Olivier Basdevant
Nils Björksten
Özer Karagedikli (Reserve Bank of New Zealand)

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Abstract

The interest rate which corresponds to neutral monetary policy settings in New Zealand appears to have trended downwards since at least the stabilisation of inflation in 1992. We present several alternative estimates of a time varying neutral real interest rate (NRR) in state space models, which all show the same declining trend. We then test for a relationship between the Neo-Wicksellian real interest rate gap and future inflation. As in Neiss and Nelson (2003), these two are highly correlated.

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Publisher Info
Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP 2004/01.

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Length: 29p
Date of creation: Apr 2004
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Handle: RePEc:nzb:nzbdps:2004/01

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Find related papers by JEL classification:
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

References listed on IDEAS
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  1. Olivier Basdevant & David Hargreaves, 2003. "Modelling structural change: the case of New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2003/03, Reserve Bank of New Zealand. [Downloadable!]
  2. repec:cup:macdyn:v:7:y:2003:i:2:p:239-62 is not listed on IDEAS
  3. Joanne Archibald & Leni Hunter, 2001. "What is the neutral real interest rate, and how can we use it?," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 64, September. [Downloadable!]
  4. Harvey, A C, 1985. "Trends and Cycles in Macroeconomic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 216-27, June.
  5. Siklos, Pierre L, 2000. "Inflation Targets and the Yield Curve: New Zealand and Australia versus the US," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 5(1), pages 15-32, February. [Downloadable!] (restricted)
  6. Professor Lars E O Svensson, 2001. "Independent review of the operation of monetary policy in New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 64, March. [Downloadable!]
  7. 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.
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  8. Paul Conway & Ben Hunt, 1997. "Estimating potential output: a semi-structural approach," Reserve Bank of New Zealand Discussion Paper Series G97/9, Reserve Bank of New Zealand. [Downloadable!]
  9. 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.
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  10. 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)
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  11. Nicola Giammarioli & Natacha Valla, 2003. "The natural real rate of interest in the Euro area," Working Paper Series 233, European Central Bank. [Downloadable!]
  12. Athanasios Orphanides & John C. Williams, 2003. "Robust monetary policy rules with unknown natural rates," Finance and Economics Discussion Series 2003-11, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
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