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Measuring the natural rate of interest in Poland in the context of the Taylor rule

Author

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  • Anna Maria Michalek

    (Nicolaus Copernicus University in Torun, Faculty of Economic Sciences and Management)

Abstract

The natural real interest rate (NRI) is one of the components of the interest rate rule presented by J.B. Taylor (Taylor rule). Original proposal of this rule is to provide recommendations for the monetary authorities for achieving good economic performance. Essential task of the central bank pursuing the strategy of direct inflation targeting is to stabilize inflation at low level. Its realization needs fine tuning of real interest rate to natural level rate of interest. Unfortunately, the NRI is not observable, so it must be estimated. In the paper we present results of estimation NRI in Poland in 1998-2011. We apply the graphical method to determine the level of NRI and Kalman filter to estimate time-varying natural rates of interest. The inclusion of estimates of the NRI in the Taylor rule allows to compare recommendations from different methods.

Suggested Citation

  • Anna Maria Michalek, 2012. "Measuring the natural rate of interest in Poland in the context of the Taylor rule," Acta Universitatis Nicolai Copernici, Ekonomia, Uniwersytet Mikolaja Kopernika, vol. 43(2), pages 161-181.
    • Handle: RePEc:cpn:umkanc:2012:p:161-181
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