Working Paper

Riders on the Storm

Abstract: Interest rates in major advanced economies have drifted down and in greater unison over the past few decades. A country?s rate of interest can be thought of as reflecting movements in the global neutral rate of interest, the domestic neutral rate, and the stance of monetary policy. Only the latter is controlled by the central bank. Estimates from a state space New Keynesian model show that central bank policy explains less than half of the variation in interest rates. The rest of the time, the central bank is catching up to trends dictated by productivity growth, demography, and other factors outside of its control.

JEL Classification: E43; E44; E52; E58; F36; N10;

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Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Paper Series

Publication Date: 2019-09-06

Number: 2019-20

Pages: 48 pages

Note: Presented at the Federal Reserve Bank of Kansas City Economic Policy Symposium “Challenges for Monetary Policy,” Jackson Hole, Wyoming, August 22–24, 2019.