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What is the neutral real interest rate, and how can we use it?

Author

Listed:
  • Joanne Archibald
  • Leni Hunter

    (Reserve Bank of New Zealand)

Abstract

This article sets out the Reserve Bank's conception of the "neutral real interest rate", and identifies factors that influence its level. These factors provide a starting point for thinking about what might cause the neutral real interest rate to change over time, or differ across countries. We consider the uses and limitations of neutral real interest rates in answering some of the questions that are relevant to monetary policy, and present a range of estimates of the neutral real interest rate for New Zealand.

Suggested Citation

  • 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.
  • Handle: RePEc:nzb:nzbbul:september2001:2
    as

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    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2001/2001sep64-3ArchibaldHunter.pdf
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    References listed on IDEAS

    as
    1. Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
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    3. Neiss, Katharine S. & Nelson, Edward, 2003. "The Real-Interest-Rate Gap As An Inflation Indicator," Macroeconomic Dynamics, Cambridge University Press, vol. 7(02), pages 239-262, April.
    4. Allsopp, Christopher & Glyn, Andrew, 1999. "The Assessment: Real Interest Rates," Oxford Review of Economic Policy, Oxford University Press, vol. 15(2), pages 1-16, Summer.
    5. Meredith Beechey & Nargis Bharucha & Adam Cagliarini & David Gruen & Christopher Thompson, 2000. "A Small Model of the Australian Macroeconomy," RBA Research Discussion Papers rdp2000-05, Reserve Bank of Australia.
    6. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-380, December.
    7. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    8. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, March.
    9. Christian Hawkesby & Christie Smith & Christine Tether, 2000. "New Zealand's currency risk premium," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 63, September.
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