The Reliability of Macroeconomic Forecasts Based on Real Interest Rate Gap Estimates in Real Time: An Assessment for the Euro Area

46 Pages Posted: 25 Oct 2010

Date Written: October 1, 2006

Abstract

The real interest rate gap or IRG - the gap between the short term real interest rate and its "natural" level - is a theoretical concept that has attracted much attention in central banks in recent years. This paper aims at clarifying its practical relevance for monetary policy in real time. For this purpose, it provides an empirical assessment of the usefulness of various univariate and multivariate estimates of the real IRG for predicting inflation, real activity and real credit growth in the euro area. The results suggest that the reliability of such indicators for real time policy guidance remains limited.

Keywords: natural rate of interest, monetary policy, forecasting

JEL Classification: C53, E37, E52

Suggested Citation

Mésonnier, Jean-Stéphane, The Reliability of Macroeconomic Forecasts Based on Real Interest Rate Gap Estimates in Real Time: An Assessment for the Euro Area (October 1, 2006). Banque de France Working Paper No. NER-E 157, Available at SSRN: https://ssrn.com/abstract=1697646 or http://dx.doi.org/10.2139/ssrn.1697646

Jean-Stéphane Mésonnier (Contact Author)

Banque de France ( email )

Paris
France

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