The Natural Rate of Interest and Its Usefulness for Monetary Policy | Zendy

Robert Barsky | Zendy; Alejandro Justiniano | Zendy; Leonardo Melosi | Zendy

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The Natural Rate of Interest and Its Usefulness for Monetary Policy

Author(s) -

Robert Barsky,

Alejandro Justiniano,

Leonardo Melosi

Publication year - 2014

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.104.5.37

Subject(s) - economics , zero lower bound , recession , dynamic stochastic general equilibrium , monetary policy , keynesian economics , monetary economics , interest rate , zero (linguistics) , great recession , natural (archaeology) , econometrics , macroeconomics , geography , linguistics , philosophy , archaeology

We estimate a state-of-the-art DSGE model to study the natural rate of interest in the United States over the last 20 years. The natural rate is highly procyclical, and fell substantially below zero in each of the last three recessions. Although the drop was of comparable magnitude across the three recessions, the decline was considerably more persistent in the Great Recession. We discuss the usefulness and limitations, particularly due to the zero lower bound, of the natural rate for the conduct of monetary policy.

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