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Relationship between the neutral interest rate and the parameters of the fiscal rule: DSGE-model of the Russian economy

Author

Listed:
  • Votinov, A.

    (Macroeconomic Research Centre, Financial Research Institute of the Ministry of Finance of the Russian Federation (FRI), Moscow, Russia)

  • Polshchikova, Yu.

    (Macroeconomic Research Centre, Financial Research Institute of the Ministry of Finance of the Russian Federation (FRI), Moscow, Russia
    National Research University Higher School of Economics (HSE University), Moscow, Russia)

Abstract

Neutral interest rate can be considered as the point of orientation, whether central bank policy is expansionary, contractionary or neutral. Nevertheless, changes in economic conditions can influence neutral rate and, therefore, the direction of monetary policy effects. In the paper with the help of DGSE-model with flexible prices for Russian economy the analysis of budgetary parameters effects on neutral rate is presented. In the model it is incorporated realistic assumptions about adjustment costs for foreign borrowings. Two stimulating budgetary shocks are considered: deviation from targeting a zero level of structural deficit towards its increase and an increase in the base oil price. The analysis shows that, first, the way budgetary policy is financed is one of the key factors, influencing dynamics of neutral rate. Second, limits of foreign borrowings has impact on the way of financing stimulating budgetary policy and, therefore, the neutral rate reaction. Third, the neutral rate reaction is more sensitive toward shock persistency in the economy without adjustment costs for foreign borrowings.

Suggested Citation

  • Votinov, A. & Polshchikova, Yu., 2025. "Relationship between the neutral interest rate and the parameters of the fiscal rule: DSGE-model of the Russian economy," Journal of the New Economic Association, New Economic Association, vol. 68(3), pages 160-187.
    • Handle: RePEc:nea:journl:y:2025:i:68:p:160-187
    DOI: 10.31737/22212264_2025_3_160-187
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C69 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Other

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