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National natural rates of interest and the single monetary policy in the euro area

Author

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  • Sébastien Fries
  • Jean‐Stéphane Mésonnier
  • Sarah Mouabbi
  • Jean‐Paul Renne

Abstract

We estimate time‐varying national natural real rates of interest (r∗) for the four largest economies of the euro area over 1999–2016. We further derive the associated national real interest rate gaps, which gauge the perceived monetary policy stance in each country. We find that the average r∗ have been lower after 2008. Furthermore, national r∗ were significantly negative in southern countries during the sovereign crisis. As their effective real rates soared, national rate gaps across the euro area diverged. However, a common policy stance has been restored since 2014 as the European Central Bank's unconventional programs gathered pace.

Suggested Citation

  • Sébastien Fries & Jean‐Stéphane Mésonnier & Sarah Mouabbi & Jean‐Paul Renne, 2018. "National natural rates of interest and the single monetary policy in the euro area," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(6), pages 763-779, September.
    • Handle: RePEc:wly:japmet:v:33:y:2018:i:6:p:763-779
    DOI: 10.1002/jae.2637
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    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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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