A0162
Title: On a standard method for measuring the natural rate of interest
Authors: Daniel Buncic - Stockholm University (Sweden) [presenting]
Abstract: It is shown that Median Unbiased Estimation (MUE), as implemented previously, cannot recover the signal-to-noise ratio parameter of interest and leads to a spurious downward trend in the estimate of the natural rate. We provide a correction to the implementation of MUE in HLW. This correction is quantitatively important and results in substantially smaller point estimates of the signal-to-noise ratio parameter that affects the severity of the downward trend in the natural rate. For the US, the point estimate decreases from 0.040 to 0.013, and is statistically highly insignificant. For the Euro Area, the UK and Canada, the MUE point estimates are exactly zero. The resulting natural rate estimates from the corrected MUE implementation are up to 100 basis points larger than originally reported.
