The Natural Rate of Interest in a Nonlinear DSGE Model

37 Pages Posted: 12 May 2017

See all articles by Yasuo Hirose

Yasuo Hirose

Faculty of Economics, Keio University

Takeki Sunakawa

Hitotsubashi University - Graduate School of Economics

Date Written: May 11, 2017

Abstract

This paper investigates how and to what extent nonlinearity, including the zero lower bound on the nominal interest rate, affects the estimates of the natural rate of interest in a dynamic stochastic general equilibrium model with sticky prices and wages. We find that the estimated natural rate of interest in a nonlinear model is substantially different from that in its linear counterpart because of a contractionary effect of the zero lower bound, and that other nonlinearities such as price and wage dispersion, from which a linear model abstracts, play a minor role in identifying the natural rate.

Keywords: Natural rate of interest, Nonlinearity, Zero lower bound, Particle filter

JEL Classification: C32, E31, E43, E52

Suggested Citation

Hirose, Yasuo and Sunakawa, Takeki, The Natural Rate of Interest in a Nonlinear DSGE Model (May 11, 2017). CAMA Working Paper No. 38/2017 , Available at SSRN: https://ssrn.com/abstract=2967137 or http://dx.doi.org/10.2139/ssrn.2967137

Yasuo Hirose (Contact Author)

Faculty of Economics, Keio University ( email )

2-15-45 Mita, Minato-ku
Tokyo, 108-8345
Japan

HOME PAGE: http://sites.google.com/site/yasuohirose/

Takeki Sunakawa

Hitotsubashi University - Graduate School of Economics ( email )

Naka 2-1
Kunitachi, Tokyo 186-8601
Japan

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
99
Abstract Views
676
Rank
482,743
PlumX Metrics