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Low real rates as driver of secular stagnation: empirical assessment

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  • Jan Willem van den End
  • Marco Hoeberichts

Abstract

We empirically test whether there is a causal link between the real interest rate and the natural rate of interest, which could be a harbinger of secular stagnation if the real rate declines. Outcomes of VAR models for Japan, Germany and the US show that a fall in the real rate indeed affects the natural rate. This causality is significant for Japan, borderline significant for Germany and not significant for the US. The outcomes for Japan confirm that a prolonged period of low real rates can affect potential economic growth. The policy implication is that implementing measures that raise the natural rate will be more effective in avoiding secular stagnation than reducing the real rate through higher inflation expectations.

Suggested Citation

  • Jan Willem van den End & Marco Hoeberichts, 2014. "Low real rates as driver of secular stagnation: empirical assessment," DNB Working Papers 444, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:444
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    1. Les pays avancés font-ils face à une stagnation séculaire ?
      by ? in D'un champ l'autre on 2014-11-28 01:58:00

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    Cited by:

    1. Dennis Bonam & Peter van Els & Jan Willem van den End & Leo de Haan & Irma Hindrayanto, 2018. "The natural rate of interest from a monetary and financial perspective," DNB Occasional Studies 1603, Netherlands Central Bank, Research Department.
    2. Claudio Borio & Piti Disyatat & Phurichai Rungcharoenkitkul, 2018. "What Anchors for the Natural Rate of Interest?," PIER Discussion Papers 98, Puey Ungphakorn Institute for Economic Research.

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    More about this item

    Keywords

    interest rates; financial markets and the macroeconomy; monetary policy;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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