The Rise and Fall of the Natural Interest Rate

Fiorentini, Gabriele; Galesi, Alessandro; Pérez‐Quirós, Gabriel; Sentana, Enrique

doi:10.2139/ssrn.3210707

Cited by 52 publications

(53 citation statements)

References 74 publications

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“…The evidence of non‐stationarity in the U.S. real interest rate found by Hamilton et al () refers to a very long time series of data (from 1861 to 2014), subject to regime changes in the institutional and monetary policy framework. In a panel data setup, Fiorentini et al () analyse the fluctuations of real interest rates over a longer sample than ours (starting in the 1960s) finding evidence of nonstationarity and cointegration.…”

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confidence: 65%

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Low frequency drivers of the real interest rate: Empirical evidence for advanced economies

Busetti

Caivano

2018

International Finance

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This article presents an empirical analysis of the underlying drivers of the real interest rate in advanced economies since 1980. We adopt a band spectrum regression approach, which allows us to study the link between the real interest rate and its determinants only over low frequencies, leaving aside business cycle fluctuations and high frequency noise.Spectral regressions are pooled across countries, allowing for country fixed effects. Our findings indicate that most of the long-term movements of real interest rates are explained by the evolution of total factor productivity (with a specific role for human capital accumulation) and demographic trends. Monetary policy and credit developments, instead, appear to play a limited part. According to our estimates, over recent years the natural rate of interest has remained positive in the United States and United Kingdom, but fell below zero in the euro area and Japan. Finally, the paper provides an empirical contribution to the debate on secular stagnation, suggesting that supply-side mechanisms were one of the most significant factors behind the fall in income growth in the advanced economies over the last two decades.

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confidence: 65%

“…The importance of demographics for real interest rates is a result shared by other recent studies, using different empirical frameworks; cf. Aksoy, Basso, Smith, and Grasl (); Carvalho, Ferrero, and Nechio (); Ferrero, Gross, and Neri (); Fiorentini, Galesi, Pérez‐Quirόs, and Sentana (); Gagnon, Johannsen, and Lopez‐Salido ().…”

Section: Introductionmentioning

confidence: 99%

Low frequency drivers of the real interest rate: Empirical evidence for advanced economies

Busetti

Caivano

2018

International Finance

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“…Hamilton et al (2016) interpret the natural interest rate as a long-run or steady-state safe real rate and infer the time-series measure of the natural rate with a ten-year moving average of the real interest rates. Fiorentini et al (2018) adopt a local-level model with stochastic volatility to estimate the natural interest rates for 17 advanced economies with over a century of data. Del Negro et al (2017) and Del Negro et al (2018) infer the natural interest rate from a spectrum of bond yields with a trend-cycle decomposition approach, while Johannsen and Mertens (2018) adopt a similar methodology but use shadow rates to take into account the period when policy rates became in many countries constrained at their e¤ective-lower bound (ELB) (from 2008 to 2015 or later in some countries).…”

Section: Literature Reviewmentioning

confidence: 99%

Ties that Bind: Estimating the Natural Rate of Interest for Small Open Economies

Grossman¹,

Martínez‐García²,

Wynne³

et al. 2019

gwp

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“…The detrending approach followed herein involves an unobserved components model in which the short-term real interest rate fluctuates around an unobserved, random-walk trendsimilar to the approach to estimation of an inflation trend in Stock and Watson (2007) and to the approach to estimation of the equilibrium real interest rate used in Fiorentini et al (2018).…”

Section: Trend Extractionmentioning

confidence: 99%

The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges

Kiley

2019

FEDS

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Real interest rates have been persistently below historical norms over the past decade, leading economists and policymakers to view the equilibrium real interest rate as likely to be low for some time. Various definitions and approaches to estimating the equilibrium real interest rate are examined, including approaches based on the term-structure of interest rates and small macroeconomic models. The individual-country approaches common in the literature are extended to allow for global trend and cyclical factors. The analysis finds that global factors dominate the downward trend in the equilibrium interest rate across 13 advanced economies. A corollary of this finding is that the U.S. equilibrium rate may be substantially lower than estimated in U.S.-only studies. The analysis also highlights how the common global trend confounds empirical assessments of the determinants of movements in the equilibrium rate and the need to better integrate term-structure and macroeconomic approaches.

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The Rise and Fall of the Natural Interest Rate

Cited by 52 publications

References 74 publications

Low frequency drivers of the real interest rate: Empirical evidence for advanced economies

Low frequency drivers of the real interest rate: Empirical evidence for advanced economies

Ties that Bind: Estimating the Natural Rate of Interest for Small Open Economies

The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges

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