Estimates of potential output and the neutral short-term interest rate play important roles in policy making. However, such estimates are associated with significant uncertainty and subject to significant revisions. This paper extends the structural multivariate filter methodology by adding a monetary policy block, which allows estimating the neutral rate of interest for the U.S. economy. The addition of the monetary policy block further improves the reliability of the structural multivariate filter.
Keywords: United States, Western Hemisphere, Potential output, Macroeconomic Modeling, Neutral Rate, Model Construction and Estimation, Monetary Policy (Targets, Instruments, and Effects)
Alichi, Ali and Al-Mashat, Rania and Avetisyan, Hayk and Beneš, Jaromír and Bizimana, Olivier and Butavyan, Aram and Ford, Robert and Ghazaryan, Narek and Grigoryan, Vahagn and Harutyunyan, Mane and Hovhannisyan, Anahit and Hovhannisyan, Edgar and Karapetyan, Hayk and Kharaishvili, Mariam and Laxton, Douglas and Liqokeli, Akaki and Matikyan, Karolina and Minasyan, Gevorg and Mkhatrishvili, Shalva and Nurbekyan, Armen and Orlov, Andrei and Pashinyan, Babken and Petrosyan, Garik and Rezepina, Yekaterina and Shirkhanyan, Aleksandr and Sopromadze, Tamta and Torosyan, Lusine and Vardanyan, Erik and Wang, Hou, Estimates of Potential Output and the Neutral Rate for the U.S. Economy (July 2018). IMF Working Paper No. 18/152, Available at SSRN: https://ssrn.com/abstract=3221262
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