Measuring the Natural Rate of Interest: International Trends and Determinants

By K. Holston, Thomas Laubach, John C. Williams. 2016

729 citations recorded by the source corpus.

U.S. estimates of the natural rate of interest – the real short-term interest rate that would prevail absent transitory disturbances – have declined dramatically since the start of the global financial crisis. For example, estimates using the Laubach-Williams (2003) model indicate the natural rate in the United States fell to close to zero during the crisis and has remained there through the end of 2015. Explanations for this decline include shifts in demographics, a slowdown in trend productivity growth, and global factors affecting real interest rates. This paper applies the Laubach-Williams methodology to the United States and three other advanced economies – Canada, the Euro Area, and the United Kingdom. We find that large declines in trend GDP growth and natural rates of interest have occurred over the past 25 years in all four economies. These country-by-country estimates are found to display a substantial amount of comovement over time, suggesting an important role for global factors in shaping trend growth and natural rates of interest.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/9ed9f349a9583a7c70a44281b646db619d2342f4

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Citations in the corpus

Global trends in interest rates (2018, neutral): “Jiang et al. (2018) discuss some of the frictions that would invalidate this irrelevance result and their implications for UIP.”
The COVID‐19 Pandemic and Its Impact on the Global Economy: What Does It Take to Turn Crisis into Opportunity? (2020, neutral): “All rights reserved. e A cc ep te d A rti cl e 22 Source: IMF Fiscal Monitor Database.”
On Secular Stagnation in the Industrialized World (2019, methodology): “More recent papers focus on pension system reforms to sharpen Source: Authors’ calculations. a. HLW = the model of Holston, Laubach, and Williams (2017a).”