Estimating Equilibrium Real Interest Rates in Real-Time

By Todd E. Clark, S. Kozicki. Social Science Research Network, 2005

150 citations recorded by the source corpus.

We use a range of simple models and 22 years of real-time data vintages for the U.S. to assess the difficulties of estimating the equilibrium real interest rate in real time. Model specifications differ according to whether the time-varying equilibrium real rate is linked to trend growth, and whether potential output and growth are defined by the CBO's estimates or treated as unobserved variables. Our results reveal a high degree of specification uncertainty, an important one-sided filtering problem, and considerable imprecision due to data uncertainty. Also, the link between trend growth and the equilibrium real rate is shown to be quite weak. Overall, we conclude that statistical estimates of the equilibrium real rate will be difficult to use reliably in practical policy applications.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/79cb68a34596ad3394fdb843eba042068100d1d4

Citations in the corpus

• Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Aairs Federal Reserve Board, Washington, D.C. Measuring the Natural Rate of Interest Redux (2016, unknown): “One criticism of the LW natural rate estimates are that they can be subject to sizable revisions as additional and revised data become available [Clark and Kozicki 2005].”