Bayesian multivariate Beveridge–Nelson decomposition of I(1) and I(2) series with cointegration

Abstract The dynamic IS equation implies that if the real interest rate is I(1), then so is the output growth rate with possible cointegration, and log output is I(2). This paper extends the Beveridge–Nelson decomposition to such a case, and develops a Bayesian method to obtain error bands. The method is valid whether log output is I(1) or I(2). The paper applies the method to US data to estimate the natural rates (or their permanent components) and gaps of output, inflation, interest, and unemployment jointly, and finds that allowing for cointegration gives much bigger estimates of the gaps for all variables.

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Stationary properties of the real interest rate and the per-capita consumption growth rate: empirical evidence for theoretical arguments

Applied Economics ◽

10.1080/00036840802243805 ◽

2009 ◽

Vol 41 (13) ◽

pp. 1643-1651 ◽

Cited By ~ 6

Author(s):

Claude Lopez ◽

Javier Reyes

Keyword(s):

Growth Rate ◽

Interest Rate ◽

Empirical Evidence ◽

Real Interest Rate ◽

Capita Consumption ◽

Consumption Growth ◽

The Real ◽

Per Capita ◽

Per Capita Consumption

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Government borrowing as a Ponzi scheme: the case of Bangladesh

Economics and Business Letters ◽

10.17811/ebl.10.1.2021.81-86 ◽

2021 ◽

Vol 10 (1) ◽

pp. 81-86

Author(s):

Syed Yusuf Saadat

Keyword(s):

Economic Growth ◽

Growth Rate ◽

Interest Rate ◽

Real Interest Rate ◽

Government Debt ◽

Economic Growth Rate ◽

The Real ◽

Ponzi Scheme ◽

The Government

This study investigates whether government borrowing can be likened to a Ponzi scheme which will allow the government to roll-over its debt perpetually. The results show that, on the basis of the condition of maintaining real economic growth rate above and beyond the real interest rate on government debt, it will not be possible to sustain a perpetual Ponzi scheme of all four types of National Savings Certificates in Bangladesh. The government’s debt may be rolled over perpetually for two types of National Savings Certificates, following the condition outlined in Ball, et al. (1998), or for three types of National Savings Certificates following the condition outlined in Mehrotra (2017).

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On the Optimal Inflation Rate

The American Economic Review ◽

10.1257/aer.p20161076 ◽

2016 ◽

Vol 106 (5) ◽

pp. 484-489 ◽

Cited By ~ 9

Author(s):

Markus K. Brunnermeier ◽

Yuliy Sannikov

Keyword(s):

Growth Rate ◽

Interest Rate ◽

Portfolio Choice ◽

Capital Investment ◽

Real Interest Rate ◽

Physical Capital ◽

Individual Agent ◽

The Real ◽

Portfolio Decisions ◽

Pecuniary Externality

In our incomplete markets economy households choose portfolios consisting of risky (uninsurable) capital and money. Money is a bubble, it has positive value even though it yields no payoff. The market outcome is constrained Pareto inefficient due to a pecuniary externality. Each individual agent takes the real interest rate as given, while in the aggregate it is driven by the economic growth rate, which in turn depends on individual portfolio decisions. Higher inflation due to higher money growth lowers the real interest rate on money and tilts the portfolio choice towards physical capital investment. Modest inflation boosts growth rate and welfare.

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