A1476
Title: The term structure of natural rates of interest
Authors: Gianni Amisano - Federal Reserve Board (United States) [presenting]
Abstract: Empirical estimates of the term structure of natural rates of interest in the U.S. economy are presented. The natural rate in a structural macro model is defined following a prior study: the real interest rate, which would prevail in the absence of nominal rigidities. As an external validation of the inference on expected future values of the natural rate, it is found that the resulting model-based measure of real rates is remarkably close to index-linked yield data not used in estimation. The model is then solved to second order, and time-varying conditional variances are assumed for structural shocks to capture possible variations in term premia. The results confirm reduced-form findings suggesting that the natural rate was subject to a secular trend over the past 30 years. In the model, these dynamics are mostly due to a secular increase in macroeconomic uncertainty that increases the demand for precautionary saving. By contrast, the short-run natural rate movements are almost entirely due to technology and demand-type shocks. We argue that a medium-run notion of natural rate may be the most useful policy indicator.
