Measuring the Natural Rate of Interest: Alternative Specifications
Year: 2017
Type: article
Abstract: We build on the work of Laubach and Williams (2003) and subsequent studies by analyzing the effect on the estimates of the natural rate of interest ($r^*$) of accounting for full parameter uncertainty and alternative specifications for the underlying components of the natural rate. Our estimation technique delivers richer time-series dynamics for the median estimate of $r^*$ within the Laubach and Williams model. Additionally, we find that models with transitory shocks to the non-growth component of the natural rate have a higher marginal likelihood and produce an upward-sloping post-crisis trajectory of the $r^*$ path and thus a higher recent median point estimate (1.8\% in 2016:Q3).
Authors: Kurt F. Lewis, Francisco Vazquez-Grande
Institutions: Federal Reserve, Federal Reserve Board of Governors
Language: English
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W2621367567