← Search

Measuring the Natural Rate of Interest

Thomas Laubach1,2; John C. Williams3

1 Federal Reserve · 2 Federal Reserve Board of Governors · 3 Federal Reserve Bank of San Francisco

The Review of Economics and Statistics 2003 open access

The natural rate of interest—the real interest rate consistent with output equaling its natural rate and stable inflation—plays a central role in macroeconomic theory and monetary policy. Estimation of the natural rate of interest, however, has received little attention. We apply the Kalman filter to estimate jointly time-varying natural rates of interest and output and trend growth. We find a close link between the natural rate of interest and the trend growth rate, as predicted by theory. Estimates of the natural rate of interest, however, are very imprecise and subject to considerable real-time measurement error.

DOI
10.1162/003465303772815934
Volume
85 (4)
Pages
1063-1070
Language
en
Export
BibTeX
Sources
openalex crossref