R-Star: A new approach to estimate the polar star of monetary policy
Please always quote using this URN: urn:nbn:de:bvb:20-opus-327394
- The necessary adjustments to prominent measures of the neutral rate of interest following the COVID pandemic sparked a wide-ranging debate on the measurement and usefulness of r-star. Due to high uncertainty about relevant determinants, trend patterns and the correct estimation method, we propose in this paper a simple alternative approach derived from a standard macro model. Starting from a loss function, neutral periods can be determined in which a neutral real interest rate is observable. Using these values, a medium-term trend for a neutralThe necessary adjustments to prominent measures of the neutral rate of interest following the COVID pandemic sparked a wide-ranging debate on the measurement and usefulness of r-star. Due to high uncertainty about relevant determinants, trend patterns and the correct estimation method, we propose in this paper a simple alternative approach derived from a standard macro model. Starting from a loss function, neutral periods can be determined in which a neutral real interest rate is observable. Using these values, a medium-term trend for a neutral interest rate can be determined. An application to the USA shows that our simple calculation of a neutral interest rate delivers comparable results to existing studies. A Taylor rule based on our neutral interest rate also does a fairly good job of explaining US monetary policy over the past 60 years.…
Author: | Peter Bofinger, Thomas Haas |
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URN: | urn:nbn:de:bvb:20-opus-327394 |
Document Type: | Working Paper |
Faculties: | Wirtschaftswissenschaftliche Fakultät / Volkswirtschaftliches Institut |
Language: | English |
Year of Completion: | 2023 |
Series (Serial Number): | Würzburg Economic Papers (W. E. P.) (106) |
DOI: | https://doi.org/10.25972/OPUS-32739 |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 339 Makroökonomie und verwandte Themen |
GND Keyword: | Zins; Geldpolitik |
Tag: | Neutral rate of interest; equilibrium real interest rate; monetary policy rules |
JEL-Classification: | E Macroeconomics and Monetary Economics / E3 Prices, Business Fluctuations, and Cycles |
E Macroeconomics and Monetary Economics / E4 Money and Interest Rates | |
E Macroeconomics and Monetary Economics / E5 Monetary Policy, Central Banking, and the Supply of Money and Credit | |
Release Date: | 2023/09/20 |
Licence (German): | Deutsches Urheberrecht |