The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges

53 Pages Posted: 27 Nov 2019

See all articles by Michael T. Kiley

Michael T. Kiley

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: November, 2019

Abstract

Real interest rates have been persistently below historical norms over the past decade, leading economists and policymakers to view the equilibrium real interest rate as likely to be low for some time. Various definitions and approaches to estimating the equilibrium real interest rate are examined, including approaches based on the term-structure of interest rates and small macroeconomic models. The individual-country approaches common in the literature are extended to allow for global trend and cyclical factors. The analysis finds that global factors dominate the downward trend in the equilibrium interest rate across 13 advanced economies. A corollary of this finding is that the U.S. equilibrium rate may be substantially lower than estimated in U.S.-only studies. The analysis also highlights how the common global trend confounds empirical assessments of the determinants of movements in the equilibrium rate and the need to better integrate term-structure and macroeconomic approaches.

Suggested Citation

Kiley, Michael T., The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges (November, 2019). FEDS Working Paper No. 2019-76, Available at SSRN: https://ssrn.com/abstract=3494182 or http://dx.doi.org/10.17016/FEDS.2019.076

Michael T. Kiley (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2448 (Phone)
202-452-5296 (Fax)

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

Paper statistics

Downloads
149
Abstract Views
663
Rank
354,898
PlumX Metrics