1. bookVolume 11 (2022): Edition 1 (January 2022)
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2336-9205
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11 Mar 2014
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access type Accès libre

The Credit Cycle and Measurement of the Natural Rate of Interest

Publié en ligne: 18 Jan 2022
Volume & Edition: Volume 11 (2022) - Edition 1 (January 2022)
Pages: 87 - 104
Reçu: 01 Jun 2020
Accepté: 28 Sep 2020
Détails du magazine
License
Format
Magazine
eISSN
2336-9205
Première parution
11 Mar 2014
Périodicité
3 fois par an
Langues
Anglais
Abstract

We conduct a Monte Carlo experiment using an ad-hoc New Keynesian model and a tractable agent-based model to generate artificial credit cycle episodes. We show that fluctuations in the implicit measures of the natural rate of interest obtained using a conventional trivariate Kalman filter on these artificial datasets occur in the vicinity of credit cycle peaks without any underlying changes in fundamentals (that is the agents’ type or their behaviour). The empirical analysis confirms that the measures of the natural interest rate tend to increase prior to a credit cycle peak and decrease afterwards. We conclude that a decline in the estimated natural rates of interest does not necessarily indicate changes in macroeconomic fundamentals. Instead, it may simply reflect the innate properties of the measurement technique in the vicinity of credit cycle peaks.

Keywords

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