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The evolution of the natural rate of interest: evidence from the Scandinavian countries

Author

Listed:
  • Hanna Armelius

    (Sveriges Riksbank)

  • Martin Solberger

    (Uppsala University)

  • Erik Spånberg

    (Stockholm University)

  • Pär Österholm

    (Örebro University
    National Institute of Economic Research
    University of Sydney)

Abstract

In this paper, the natural rate of interest in Denmark, Norway and Sweden is estimated. This is done by augmenting the Laubach and Williams (Rev Econ Stat 85:1063–1070, 2003) framework with a dynamic factor model linked to economic indicators––a modelling choice which allows us to better identify business cycle fluctuations. We estimate the model using Bayesian methods on data ranging from 1990Q1 to 2022Q4. The results indicate that the natural rate has declined substantially and in all countries is at a low level at the end of the sample.

Suggested Citation

  • Hanna Armelius & Martin Solberger & Erik Spånberg & Pär Österholm, 2024. "The evolution of the natural rate of interest: evidence from the Scandinavian countries," Empirical Economics, Springer, vol. 66(4), pages 1633-1659, April.
    • Handle: RePEc:spr:empeco:v:66:y:2024:i:4:d:10.1007_s00181-023-02503-w
    DOI: 10.1007/s00181-023-02503-w
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    Keywords

    Monetary policy; Business cycle; Bayesian filter; Dynamic factor model;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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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