econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 12 March 2016

From The Vault: The Path Of Interest Rates

from Liberty Street Economics

-- this post authored by Anna Snider

In recent speeches, the Federal Reserve'sJanet Yellen and Lael Brainerd explained how policymakers are likely to take a cautious approach to normalizing monetary policy given historically low estimates for the natural rate of interest and expectations that the rate will rise only gradually over time.

For background on the concepts they discuss, readers may want to check out numerous posts in the Liberty Street Economics archive covering the measurement and dynamics of the natural rate of interest as well as its use as a benchmark for calibrating monetary policy settings.

While the natural rate is unobservable, it is estimated using a variety of statistical and model-based approaches as the rate that both allows the economy to expand in line with its underlying potential and keeps inflation stable. As our bloggers explain, monetary policy can be seen as easy if the policy rate is below the natural rate, with the gap between the rates measuring the extent of the policy stimulus.

In a May 2015 post, Marco Del Negro and coauthors described how the New York Fed uses a dynamic stochastic general equilibrium (DSGE) model to calculate this hypothetical rate. The Bank's estimates tracked the natural rate from above 6 percent in 2007 to -2 percent in mid-2009 to just above zero in May 2015. The authors also explained how the model helps to gauge the impact of shocks on the natural rate, both in history and in forecasts, as they answer the question "why are interest rates so low?"

In another post, Bianca De Paoli and Pawel Zabczyk delve into how factors related to risk and uncertainty might depress the natural interest rate. Those are dimensions that standard models leave out, and whose omission might lead to a policy rate that undershoots or overshoots its appropriate level, they said.

We use the blog periodically to present the updated economic forecast implied by the New York Fed's DSGE model. See our latest estimate of the nominal natural rate of interest charted against the path of the nominal federal funds rate in a December post. The model continues to project a gradual increase in the natural rate as economic "headwinds" brought about during the financial crisis abate.

Stepping back, our bloggers have also explained how we share analysissuch as the staff's view of the level of the equilibrium rate and its anticipated dynamics with the Bank's president in preparation for Federal Open Market Committee meetings.

Selected Posts

Why Are Interest Rates So Low?

Marco Del Negro, Marc Giannoni, Matthew Cocci, Sara Shahanaghi, and Micah Smith

Risk Aversion and the Natural Interest Rate

Bianca De Paoli and Pawel Zabczyk

The FRBNY DSGE Model Forecast - November 2015

Marco Del Negro, Marc Giannoni, Erica Moszkowski, Sara Shahanaghi, and Micah Smith

The Monetary Policy Advice Process at the New York Fed

Jamie McAndrews, Jonathan McCarthy, Paolo Pesenti, Argia Sbordone, and Andrea Tambalotti

Disclaimer

The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

Source

http://libertystreeteconomics.newyorkfed.org/2016/02/from-the-vault-the-path-of-interest-rates.html#.VtBJzZwrKUk


About the Author

Anna Snider is a cross-media editor in the Federal Reserve Bank of New York's Research and Statistics Group.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Problem With Obamacare Is That It Did Little To Reduce Overall Healthcare Spending
Joan Robinson’s Critique of Marginal Utility Theory
News Blog
Joe Sixpack's Situation in 3Q2016: The Average Joe Is Better Off
Why Are Some People More Delinquent On Loans Than Others? - Part 1
Gravity Returns To San Francisco Housing Market
Violent Bond Selloff: An Eye-Opening Perspective
Infographic Of The Day: Identity Theft: You Should Be Worried
Early Headlines: Russia Hacked GOP, Trump To Drain Energy 'Swamp'?, New Sec'y Of State Candidate, India IP Shrinks, India Has World's New Largest Solar Plant , China GDP Hides Volatility And More
Most Coup Attempts In Recent Years Have Failed
The Global Cost Of Diabetes
The Universities Churning Out The Most Billionaires
Five Amazing Ways Plants Have Created New Technologies
Where U.S. Weekly Wages Go The Furthest
What We Read Today 09 December 2016
How To Stop Using Filler Words Like Um And Uh
Investing Blog
The New Art Of Utility Investing
Investing,com Weekly Wrap-up 09 December 2016
Opinion Blog
Trickle-down Economics, Trump Edition
Looking At Everything: Trump's $1 Trillion Infrastructure Plan
Precious Metals Blog
Silver Prices Rebounded Today: Where They Are Headed
Live Markets
09Dec2016 Market Close: Wall Street Closes On A New High, Trump Sugar High, Crude Prices Testing Resistance, US Dollar Melts Higher
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved