NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Riders on the Storm

Òscar Jordà, Alan M. Taylor

NBER Working Paper No. 26262
Issued in September 2019
NBER Program(s):Economic Fluctuations and Growth Program, International Finance and Macroeconomics Program, The Monetary Economics Program

Interest rates in major advanced economies have drifted down and in greater unison over the past few decades. A country’s rate of interest can be thought of as reflecting movements in the global neutral rate of interest, the domestic neutral rate, and the stance of monetary policy. Only the latter is controlled by the central bank. Estimates from a state space New Keynesian model show that central bank policy explains less than half of the variation in interest rates. The rest of the time, the central bank is catching up to trends dictated by productivity growth, demography, and other factors outside of its control.

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Document Object Identifier (DOI): 10.3386/w26262

 
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