Monday, May 15, 2017

New York Fed: "Safety, Liquidity, and the Natural Rate of Interest"

From the Federal Reserve Bank of New York:
Staff Reports 
Safety, Liquidity, and the Natural Rate of Interest
May 2017 Number 812
JEL classification: C11, C32, C54, E43, E44
Authors: Marco Del Negro, Domenico Giannone, Marc Giannoni and Andrea Tambalotti
Why are interest rates so low in the Unites States? We find that they are low primarily because the premium for safety and liquidity has increased since the late 1990s, and to a lesser extent because economic growth has slowed. We reach this conclusion using two complementary perspectives: a flexible time-series model of trends in Treasury and corporate yields, inflation, and long-term survey expectations, and a medium-scale dynamic stochastic general equilibrium (DSGE) model. We discuss the implications of this finding for the natural rate of interest.
Available only in PDF pdf 80 pages / 5.4 mb
Author disclosure statement(s)