A Simple Theory-Based Estimate of the Real Natural Rate of Interest in Open Economies

2022 ◽  
Author(s):  
Alex Ilek ◽  
Guy Segal
Keyword(s):  
Open Economies ◽  
Simple Theory ◽  
Natural Rate ◽  
The Real ◽  
Natural Rate Of Interest

scholarly journals Ties that Bind: Estimating the Natural Rate of Interest for Small Open Economies

2019 ◽  
Author(s):  
Valerie Grossman ◽  
Enrique Martinez-Garcia ◽  
Mark A. Wynne ◽  
Ren Zhang
Keyword(s):  
Open Economies ◽  
Small Open Economies ◽  
Natural Rate ◽  
Natural Rate Of Interest

scholarly journals Ties that Bind: Estimating the Natural Rate of Interest for Small Open Economies

2019 ◽  
Vol 2019 (359) ◽  
Author(s):  
Valerie Grossman ◽  
◽  
Enrique Martínez-García ◽  
Mark A. Wynne ◽  
Ren Zhang ◽  
...  
Keyword(s):  
Open Economies ◽  
Small Open Economies ◽  
Natural Rate ◽  
Natural Rate Of Interest

scholarly journals Ties that Bind: Estimating the Natural Rate of Interest for Small Open Economies

2021 ◽  
pp. 102315
Author(s):  
Ren Zhang ◽  
Enrique Martínez-García ◽  
Mark A. Wynne ◽  
Valerie Grossman
Keyword(s):  
Open Economies ◽  
Small Open Economies ◽  
Natural Rate ◽  
Natural Rate Of Interest

scholarly journals Real Capital

2021 ◽  
pp. 63-103
Author(s):  
Carl Christian von Weizsäcker ◽  
Hagen M. Krämer
Keyword(s):  
Real Interest Rate ◽  
Marginal Product ◽  
Intertemporal Substitution ◽  
Natural Rate ◽  
The Real ◽  
Natural Rate Of Interest ◽  
Marginal Returns ◽  
China Region ◽  
General Opinion ◽  
Loss Formula

AbstractPreshaped by the influence of Marx, Böhm-Bawerk and modern neoclassical economics, the general opinion is that the marginal product of capital must always be positive. With the help of the “period of production” T, we define a coefficient of intertemporal substitutionψ that is always non-negative. It can also be used when the real interest rate is negative. With the help of the concept of the “waiting period” Z, we can also define an always non-negative coefficient of intertemporal substitutionγ for the household side. The “loss formula” for deviations of the rate of interest from the growth rate is one application of ψ and γ. Ω = (ψT2 + γZ2)(r − g)2/2 provides a good approximation of the relative loss Ω. Overcomplexity of the system of production leads to negative marginal returns on capital. It can be empirically presumed that the OECD plus China region is on the cusp of overcomplexity. The hypothetical natural rate of interest in the eurozone is well into the minuses. To determine the value of the real capital of the private sector in the OECD plus China region, we use a framework of data taken from the World Inequality Database (WID.world). We have supplemented the data available there with data from other sources and adapted it to our theoretical objectives. According to our estimates, private wealth in the form of real capital in the OECD plus China region comes to approximately four times total annual consumption.

scholarly journals Ties that Bind: Estimating the Natural Rate of Interest for Small Open Economies

2021 ◽  
Vol 2019 (359) ◽  
Author(s):  
Valerie Grossman ◽  
◽  
Enrique Martínez-García ◽  
Mark A. Wynne ◽  
Ren Zhang ◽  
...  
Keyword(s):  
Open Economies ◽  
Small Open Economies ◽  
Natural Rate ◽  
Natural Rate Of Interest

On the real effects of inflation in open economies: theory and empirics

2009 ◽  
Vol 39 (3) ◽  
pp. 643-673 ◽  
Author(s):  
Sushanta K. Mallick ◽  
Mohammed Mohsin
Keyword(s):  
Open Economies ◽  
The Real ◽  
Real Effects

scholarly journals Concluding Remarks on the Negative Natural Rate of Interest

2021 ◽  
pp. 225-245
Author(s):  
Carl Christian von Weizsäcker ◽  
Hagen M. Krämer
Keyword(s):  
Public Debt ◽  
Full Employment ◽  
Natural Rate ◽  
Extrapolation Procedure ◽  
The Public ◽  
Secular Evolution ◽  
Natural Rate Of Interest ◽  
Great Divergence ◽  
China Region ◽  
Over Time

AbstractThe Great Divergence: The period of production T is not rising anymore. The “waiting period” Z is rising over time with the rising standard of living and rising life expectancy, and this is the case worldwide. In the interest of full employment, the public debt periodD has to compensate for this divergence: T = Z − D. Using an extrapolation procedure that we have developed and the available empirical data, we calculate total private wealth in the OECD plus China region. Net public debt already accounts for nearly half of private wealth today. COVID-19 increases the optimal steady-statepublic debt period. Both our theory and our empirical findings are increasingly confirmed by the work of other economists: for example, by Lawrence Summers’secular stagnation thesis and by the study of Jordà, Schularick and others on the secular evolution of private wealth.

scholarly journals The Natural Rate of Interest and the Optimal Rate of Interest in the Steady State

2021 ◽  
pp. 17-41
Author(s):  
Carl Christian von Weizsäcker ◽  
Hagen M. Krämer
Keyword(s):  
Steady State ◽  
Public Debt ◽  
Fundamental Equation ◽  
Optimal Rate ◽  
Natural Rate ◽  
Real Rate ◽  
Capital Theory ◽  
Steady State Rate ◽  
Natural Rate Of Interest ◽  
State Rate

AbstractThe “natural rate of interest” is the hypothetical, risk-free real rate of interest that would obtain in a closed economy, if net public debt were zero. It is considerably less than the optimal steady-state rate of interest, which is equal to the system’s growth rate. This holds for a very general “meta-model.” The fundamental equation of capital theory holds on the optimal steady-state path: T = Z − D, where T is the overall economic period of production, Z is the representative private “waiting period” of consumers and D is the public debt ratio. Prosperity is at least 30% lower at the natural rate of interest than at the optimal rate.

scholarly journals Identification-Robust Estimates of the Canadian Natural Rate of Interest

2016 ◽  
Vol 91 (1-2) ◽  
pp. 161-176
Author(s):  
Maral Kichian
Keyword(s):  
Interest Rate ◽  
Robust Methods ◽  
Errors In Variables ◽  
Natural Rate ◽  
Real Rate ◽  
Point Estimates ◽  
Natural Rate Of Interest ◽  
Best Fitting ◽  
Estimate Precision ◽  
Fitting Model

The natural rate of interest is an unobservable entity and its measurement presents some important empirical challenges. In this paper, we use identification-robust methods and central bank real-time staff projections to obtain estimates for the equilibrium real rate from contemporaneous and forward-looking Taylor-type interest rate rules. The methods notably account for the potential presence of endogeneity, under-identification, and errors-in-variables concerns. Our applications are conducted on Canadian data. The results reveal some important identification difficulties associated with some of our models, reinforcing the need to use identification-robust methods to estimate such policy functions. Despite these challenges, we are able to obtain fairly comparable point estimates for the real equilibrium interest rate across our different models, and in the case of the best fitting model, also remarkable estimate precision.

Brazil: monetary policy and the neutral interest rate

2016 ◽  
Vol 43 (6) ◽  
pp. 966-979
Author(s):  
Cleomar Gomes da Silva ◽  
Rafael Cavalcanti de Araújo
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Real Interest Rate ◽  
Design Methodology ◽  
Macroeconomic Model ◽  
Natural Rate ◽  
Content Type ◽  
Natural Rate Of Interest ◽  
The Interest Rate ◽  
Definition Of

Purpose The purpose of this paper is to analyze the conduct of monetary policy in Brazil and estimate the country’s neutral real interest rate. Design/methodology/approach The authors make use of a state-space macroeconomic model representation. Findings The period of analysis goes from 2003 up to the end of 2013 and the results show that the country’s natural rate of interest was around 4.2 percent in December 2013. Originality/value One of the main differences of this work is the inclusion of variables such as the real exchange rate and world interest rate. This is important because these variables play an important role in the definition of the interest rate and, consequently, in the definition of the neutral interest rate.

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