The reason he brings it up-- aside from obvious interest in what the Fed should do about interest rates-- is because a recent paper by Thomas Laubach of Federal Reserve and San Francisco Fed President John Williams has just provided updated estimates of the natural rate for the U.S. Laubach and Williams estimate that the natural rate has fallen to around 0% in the past few years.

The authors' estimates come from a methodology they developed in 2001 (published 2003). The earlier paper noted the imprecision of estimates of the natural rate. The solid line in the figure below presents their estimates of the natural real interest rate, while the dashed line is the real federal funds rate. The green shaded region is the

**70%**confidence interval around the estimates of the natural rate. (Technical aside: Since the estimation procedure uses the Kalman filter, they compute these confidence intervals using Monte Carlo methods from Hamilton (1986) that account for both filter and parameter uncertainty.) The more commonly reported 90% or 95% confidence interval would of course be even wider, and would certainly include both 0% and 6% in 2000.

Source: Laubach and Williams 2001 |

Source: Laubach and Williams 2015 |

Note the difference in y-axes on the two preceding figures. If you were to draw those green confidence bands from the older paper on the updated figure from the newer paper, they would basically cover the whole figure. In a "statistical significance" sense (three stars***!), we might not be able to say that the natural rate has fallen. (I can't be sure without knowing the standard errors of the updated estimates, but that's my guess given the width of the 70% confidence intervals on the earlier estimates, and my hunch that the confidence intervals for the newer estimates are even wider, because lots of confidence intervals got wider around 2008.)

I point this out not to say that these findings are insignificant. Quite the opposite, in fact. The economic significance of a decline in the natural rate is so large, in terms of policy implications and what it says about the underlying growth potential of the economy, that this result merits a lot of attention even if it lacks p<0.05 statistical significance. I think it is more common in the profession to overemphasize statistical significance over economic significance.

What if the FED raises its Funds Rate when the economy is really, really, not very perky? Does the cost of borrowing go up in lockstep anyway? For instance, it people's desire to buy houses wanes significantly, do mortgage rates go up nonetheless? From the above, maybe not, but can the effect be estimated?

ReplyDeleteIt is super important to have a real time measure of potential real GDP to get a good measure of the natural rate of interest.

ReplyDeleteHere is my post that talks about that.

http://angrybearblog.com/2015/10/lw-not-see.html

Look at indicators of the growth of potential. It is positive, not negative. But it is much lower than it used to be.

Thanks for sharing wonderful and accurate news about Commodity Market.

ReplyDeleteNifty Future

red rose day

ReplyDelete7 feb rose day

rose day greetings

world rose day

date of rose day

rose day cards

valentines day rose

valentine rose day

rose day msgs

national rose day

rose day wallpapers

rose day photos

rose day photo

rose day flowers

largest companies by market cap. 2021 third-quarter revenue of $7.2 billion also a 14% increase over the year-ago period on the back of robust demand from the mobility, cloud, connected devices, and semiconductor capital equipment segments and Adjusted earnings jumped to $1.30 per share from $0.37 per share last year. amazon market cap

ReplyDeletegoogle 3765

ReplyDeletegoogle 3766

google 3767

google 3768

google 3769

I really happy found this website eventually. Really informative and inoperative, Thanks for the post and effort! Please keep sharing more such blog. 가평출장마사지

ReplyDelete이천출장마사지

일산출장마사지

파주출장마사지

평택출장마사지

화성출장마사지

의정부출장마사지

동해출장마사지

삼척출장마사지

kralbet

ReplyDeletebetpark

tipobet

slot siteleri

kibris bahis siteleri

poker siteleri

bonus veren siteler

mobil ödeme bahis

betmatik

R0OU

’ll be coming back to your website for more soon.

ReplyDeleteI am very impressed with your post because this post is very beneficial for me and provide a new knowledge.

ReplyDeleteNice article. This is quite informative.

ReplyDeleteThere are many game styles to enjoy at the online TotoSite casino.

ReplyDelete

ReplyDeletewow, its a incredible information. thanks for sharing.

ReplyDeleteI must thank you for the efforts you’ve put in writing this blog.

ReplyDeleteExcellent and nice post. It will beneficial for everyone.

Thanks for sharing such a wonderful post.

ReplyDelete

ReplyDeleteImpressive！Thanks for giving me an idea to my site

ReplyDeleteThanks for posting this educative write up

ReplyDeleteGreat job for publishing such a beneficial web site

Thanks for posting this educative writeup.

ReplyDelete