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Testing for time variation in the natural rate of interest
Author(s) -
Berger Tino,
Kempa Bernd
Publication year - 2019
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.2698
Subject(s) - econometrics , variation (astronomy) , selection (genetic algorithm) , model selection , constant (computer programming) , bayesian probability , statistics , economics , mathematics , computer science , artificial intelligence , astrophysics , physics , programming language
Summary This paper replicates in a wider sense the unobserved components model of Laubach and Williams ( Review of Economics and Statistics , 2003, 85 , 1063–1070) to estimate the natural rate of interest (NRI) and investigates the role of model uncertainty. A stochastic Bayesian model selection procedure is employed to test the hypothesis of time variation in the NRI against a constant NRI. The model selection confirms time variation in the NRI as a result of changes in potential output growth, but other determinants of the NRI are found constant.