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The Macroeconomic Consequences of Natural Rate Shocks: An Empirical Investigation

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  • Stephanie Schmitt-Grohé
  • Martín Uribe

Abstract

Much of the empirical literature on the natural rate of interest has focused on estimating its path. This paper studies the effects of natural rate shocks on output and inflation. It estimates a semi-structural model inspired by the DSGE literature. A decline in the natural rate is found to have a large negative effect on the trend of output and to be contractionary and deflationary in the short run. When the economy is constrained by the zero lower bound (ZLB), these results are consistent with the secular stagnation hypothesis. However, negative natural rate shocks are found to depress the trend of output even outside of the ZLB, calling for a more general theory of secular stagnation.

Suggested Citation

  • Stephanie Schmitt-Grohé & Martín Uribe, 2022. "The Macroeconomic Consequences of Natural Rate Shocks: An Empirical Investigation," NBER Working Papers 30337, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30337
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    Cited by:

    1. Sandra Daudignon & Oreste Tristani, 2022. "Monetary policy and the drifting natural rate of interest," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 22/1057, Ghent University, Faculty of Economics and Business Administration.
    2. James A. Duffy & Sophocles Mavroeidis & Sam Wycherley, 2022. "Cointegration with Occasionally Binding Constraints," Papers 2211.09604, arXiv.org, revised Jul 2023.
    3. Kang, Kyu Ho & Do, Kyeongtak, 2024. "Korea’s neutral interest rate: Estimates, determinants, and monetary policy stance," Journal of Asian Economics, Elsevier, vol. 92(C).

    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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