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Measuring the Natural Rate of Interest*

* This paper has been replicated

Author

Listed:
  • Thomas Laubach

    (Board of Governors of the Federal Reserve System)

  • John C. Williams

    (Federal Reserve Bank of San Francisco)

Abstract

The natural rate of interest-the real interest rate consistent with output equaling its natural rate and stable inflation-plays a central role in macroeconomic theory and monetary policy. Estimation of the natural rate of interest, however, has received little attention. We apply the Kalman filter to estimate jointly time-varying natural rates of interest and output and trend growth. We find a close link between the natural rate of interest and the trend growth rate, as predicted by theory. Estimates of the natural rate of interest, however, are very imprecise and subject to considerable real-time measurement error. © 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Thomas Laubach & John C. Williams, 2003. "Measuring the Natural Rate of Interest," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1063-1070, November.
    • Handle: RePEc:tpr:restat:v:85:y:2003:i:4:p:1063-1070
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    Replication

    This item has been replicated by:
  • Tino Berger & Bernd Kempa, 2019. "Testing for time variation in the natural rate of interest," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 34(5), pages 836-842, August.

    • More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Measuring the Natural Rate of Interest (REStat 2003) in ReplicationWiki

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