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Dynamics of the natural rate of interest and monetary policy

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  • Davtyan, Karen

Abstract

This paper studies the relation between the monetary policy rate and the natural rate of interest in the euro area and the United States across the periods of conventional monetary policy (CMP) and unconventional monetary policy (UMP). The unobserved time series of the natural rate of interest is estimated at the monthly frequency at which the relation between the policy rate and the natural rate is evaluated. The results indicate that the dynamics of the policy rate was positively and significantly related to the variations in the natural rate during the CMP period. The relation twisted during the UMP period.

Suggested Citation

  • Davtyan, Karen, 2025. "Dynamics of the natural rate of interest and monetary policy," Finance Research Letters, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:finlet:v:72:y:2025:i:c:s1544612324015046
    DOI: 10.1016/j.frl.2024.106475
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    References listed on IDEAS

    as
    1. Holston, Kathryn & Laubach, Thomas & Williams, John C., 2017. "Measuring the natural rate of interest: International trends and determinants," Journal of International Economics, Elsevier, vol. 108(S1), pages 59-75.
    2. Alessandro Galesi & Galo Nuño & Carlos Thomas, 2017. "The natural interest rate: concept, determinants and implications for monetary policy," Economic Bulletin, Banco de España, issue MAR.
    3. Alessandro Galesi & Galo Nuño & Carlos Thomas, 2017. "The natural interest rate: concept, determinants and implications for monetary policy," Economic Bulletin, Banco de España;Economic Bulletin Homepage, issue 1/2017.
    4. Ben S. Bernanke, 2020. "The New Tools of Monetary Policy," American Economic Review, American Economic Association, vol. 110(4), pages 943-983, April.
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    More about this item

    Keywords

    Monetary policy; Monthly estimates; Natural rate of interest; Zero lower bound;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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
    • 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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