Working Paper

Measuring the Natural Rate of Interest : A Note on Transitory Shocks

Abstract: 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.

Keywords: Kalman filter; Monetary policy; Natural rate of interest; Pileup; Trend growth;

JEL Classification: C32; E43; E52; O40;

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2018-08-07

Number: 2017-059

Pages: 33 pages