Safety, Liquidity, and the Natural Rate of Interest

82 Pages Posted: 12 May 2017

See all articles by Marco Del Negro

Marco Del Negro

Federal Reserve Bank of New York

Domenico Giannone

Federal Reserve Banks - Federal Reserve Bank of New York; Centre for Economic Policy Research (CEPR)

Marc P. Giannoni

Federal Reserve Banks - Federal Reserve Bank of Dallas; Center for Economic Policy Research (CEPR)

Andrea Tambalotti

Federal Reserve Bank of New York

Date Written: 2017-05-11

Abstract

Why are interest rates so low in the Unites States? We find that they are low primarily because the premium for safety and liquidity has increased since the late 1990s, and to a lesser extent because economic growth has slowed. We reach this conclusion using two complementary perspectives: a flexible time-series model of trends in Treasury and corporate yields, inflation, and long-term survey expectations, and a medium-scale dynamic stochastic general equilibrium (DSGE) model. We discuss the implications of this finding for the natural rate of interest.

Keywords: natural rate of interest, r*, DSGE models, liquidity, safety, convenience yield

JEL Classification: C11, C32, C54, E43, E44

Suggested Citation

Del Negro, Marco and Giannone, Domenico and Giannoni, Marc P. and Tambalotti, Andrea, Safety, Liquidity, and the Natural Rate of Interest (2017-05-11). FRB of NY Staff Report No. 812. Available at SSRN: https://ssrn.com/abstract=2967235

Marco Del Negro (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Domenico Giannone

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Marc P. Giannoni

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States
214-922-5291 (Phone)

Center for Economic Policy Research (CEPR)

90-98 Goswell Road
London, EC1V 7RR
United Kingdom

Andrea Tambalotti

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
68
Abstract Views
401
rank
339,870
PlumX Metrics