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Equilibrium Real Interest Rates and Secular Stagnation: An Empirical Analysis for Euro Area Member Countries

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  • Ansgar Belke
  • Jens Klose

Abstract

Is secular stagnation—a period of persistently lower growth such as that seen following the financial crisis of 2008/09—a valid concern for euro-area countries? We tackle this question using the well-established Laubach-Williams model to estimate the unobservable equilibrium real interest rate and compare it to the actual real rate. In light of the considerable increase in heterogeneity among EU member countries since the beginning of the financial crisis, we apply our approach to twelve euro-area countries to provide country-level answers to the question of secular stagnation. The presence of secular stagnation in a number of euro-area countries has important implications for ECB decision-making (i.e., voting power in the Governing Council) and EU governance. Our results indicate that secular stagnation is not a significant threat to most euro-area countries, with one possible exception: Greece.
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  • Ansgar Belke & Jens Klose, 2017. "Equilibrium Real Interest Rates and Secular Stagnation: An Empirical Analysis for Euro Area Member Countries," Journal of Common Market Studies, Wiley Blackwell, vol. 55(6), pages 1221-1238, November.
  • Handle: RePEc:bla:jcmkts:v:55:y:2017:i:6:p:1221-1238
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    File URL: http://hdl.handle.net/10.1111/jcms.12552
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    Cited by:

    1. Beckmann, Joscha & Belke, Ansgar & Dreger, Christian, 2017. "The relevance of international spillovers and asymmetric effects in the Taylor rule," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 162-170.
    2. Czudaj, Robert L., 2020. "Is the negative interest rate policy effective?," Journal of Economic Behavior & Organization, Elsevier, vol. 174(C), pages 75-86.
    3. Victor Bystrov, 2018. "Measuring the Natural Rates of Interest in Germany and Italy," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 10(4), pages 333-353, December.
    4. Belke, Ansgar & Klose, Jens, 2019. "Safe haven flows, natural interest rates and secular stagnation: Empirical evidence for euro area countries," Ruhr Economic Papers 831, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Belke, Ansgar & Klose, Jens, 2018. "Equilibrium real interest rates, secular stagnation, and the financial cycle: Empirical evidence for euro-area member countries," Ruhr Economic Papers 743, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    6. Alberto Botta & Ben Tippet, 2020. "Secular stagnation and core-periphery uneven development in post-crisis eurozone," Working Papers PKWP2002, Post Keynesian Economics Society (PKES).
    7. Mariarosaria Comunale & Jonas Striaukas, 2017. "Unconventional monetary policy: interest rates and low inflation: A review of literature and methods," CAMA Working Papers 2017-29, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    8. Marcin Bielecki & Michał Brzoza‐Brzezina & Marcin Kolasa & Krzysztof Makarski, 2019. "Could the Boom‐Bust in the Eurozone Periphery Have Been Prevented?," Journal of Common Market Studies, Wiley Blackwell, vol. 57(2), pages 336-352, March.
    9. Ansgar Belke & Jens Klose, 2019. "Forecasting ECB Policy Rates with Different Monetary Policy Rules," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 69(3), pages 238-252, June.
    10. Klose, Jens, 2020. "Equilibrium real interest rates for the BRICS countries," The Journal of Economic Asymmetries, Elsevier, vol. 21(C).
    11. Jens Klose, 2019. "Are Eastern European Taylor Reaction Functions Asymmetric in Inflation or Output? Empirical Evidence for Four Countries," Eastern European Economics, Taylor & Francis Journals, vol. 57(1), pages 31-49, January.
    12. Ansgar Belke & Clemens Domnick & Daniel Gros, 2017. "Business Cycle Synchronization in the EMU: Core vs. Periphery," Open Economies Review, Springer, vol. 28(5), pages 863-892, November.
    13. Ernest Gnan & Maria Teresa Valderrama & Walter Waschiczek, 2019. "Financing conditions in Austria since the introduction of the euro," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1-Q2/19, pages 57-70.
    14. Belke, Ansgar & Klose, Jens, 2020. "Equilibrium real interest rates and the financial cycle: Empirical evidence for Euro area member countries," Economic Modelling, Elsevier, vol. 84(C), pages 357-366.
    15. Bystrov Victor, 2018. "Measuring the Natural Rates of Interest in Germany and Italy," Lodz Economics Working Papers 7/2018, University of Lodz, Faculty of Economics and Sociology.
    16. Brand, Claus & Bielecki, Marcin & Penalver, Adrian, 2018. "The natural rate of interest: estimates, drivers, and challenges to monetary policy JEL Classification: E52, E43," Occasional Paper Series 217, European Central Bank.

    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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