Measuring the Natural Rate of Interest: A Note on Transitory Shocks
33 Pages Posted: 5 Jun 2017 Last revised: 29 Apr 2020
Date Written: June, 2017
We present evidence that the natural rate of interest is buffeted by both permanent and transitory shocks. We establish this result by estimating a benchmark model with Bayesian methods and loose priors on the unobserved drivers of the natural rate. When subject to transitory shocks, the median estimate for the U.S. economy is more procyclical, displays a less marked secular decline, and is therefore higher following the Great Recession than most estimates in the literature.
JEL Classification: C32, E43, E52, O40
Suggested Citation: Suggested Citation
Lewis, Kurt F. and Vazquez-Grande, Francisco, Measuring the Natural Rate of Interest: A Note on Transitory Shocks (June, 2017). FEDS Working Paper No. 2017-59, Available at SSRN: https://ssrn.com/abstract=2979915 or http://dx.doi.org/10.17016/FEDS.2017.059r1
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