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R-star wars: the phantom menace

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  • James B. Bullard

    (Federal Reserve Bank of St. Louis)

Abstract

The natural real rate of interest has been on a declining path for the past 30 years. I present a regime-switching analysis of the natural rate, which suggests that the current low levels are likely to persist in the near future. I identify a high global demand for safe assets as the most important factor in keeping the natural rate low. I conclude that the current low levels of the policy rate are generally appropriate, with some upside risk, and that forward guidance should be characterized by a flat policy rate path.

Suggested Citation

  • James B. Bullard, 2018. "R-star wars: the phantom menace," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 53(2), pages 60-65, April.
    • Handle: RePEc:pal:buseco:v:53:y:2018:i:2:d:10.1057_s11369-018-0077-1
    DOI: 10.1057/s11369-018-0077-1
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    Cited by:

    1. Wang, Bin & Kwan, Yum K., 2021. "Measuring the natural rates of interest of OECD and BRICS economies: A time varying perspective," Journal of International Money and Finance, Elsevier, vol. 112(C).
    2. Saeed Zaman, 2021. "A Unified Framework to Estimate Macroeconomic Stars," Working Papers 21-23R2, Federal Reserve Bank of Cleveland, revised 31 May 2024.

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    More about this item

    Keywords

    Natural real interest rate; Markov switching; Monetary policy rules;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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