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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Measuring the Natural Rate of Interest : A Note on Transitory Shocks
Kurt F. Lewis
Francisco Vazquez-Grande
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.


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Kurt F. Lewis & Francisco Vazquez-Grande, Measuring the Natural Rate of Interest : A Note on Transitory Shocks, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2017-059, Jun 2017, revised 07 Aug 2018.
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Keywords: Kalman filter; Monetary policy; Natural rate of interest; Pileup; Trend growth
DOI: 10.17016/FEDS.2017.059r1
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