{
  "title": "Lower for Longer: Neutral Rates in the United States",
  "publication": "IMF Working Papers, June 24, 2015",
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  "summary": "We use a semi structural model to estimate neutral rates in the United States. Our Bayesian estimation incorporates prior information on the output gap and potential output (based on a production function approach) and accounts for unconventional monetary policies at the ZLB by using estimates of “s",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Study uses a semi structural model to estimate neutral rates in the United States.\n- Bayesian estimation incorporates prior information on the output gap and potential output (based on a production function approach).\n- Unconventional monetary policies at the ZLB are accounted for using estimates of “shadow” policy rates.\n- The approach provides more plausible results than standard maximum likelihood estimates for the unobserved variables in the model.\n- Results show a significant trend decline in the neutral real rate over time, driven only in part by a decline in potential growth; other factors (including excess global savings) matter.\n- Neutral rates likely turned negative during the Global Financial Crisis and are expected to increase only gradually looking forward."
    },
    {
      "heading": "Methodology",
      "content": "- Semi structural model framework.\n- Bayesian estimation that:\n  - Incorporates prior information on the output gap.\n  - Incorporates prior information on potential output based on a production function approach.\n- Adjustment for zero lower bound (ZLB) monetary policy by using “shadow” policy rate estimates.\n- Comparison with standard maximum likelihood estimation for unobserved variables."
    },
    {
      "heading": "Key Findings",
      "content": "- Significant trend decline in the neutral real rate over time.\n- Decline in potential growth explains only part of the decline in the neutral real rate.\n- Other factors, including excess global savings, contribute to the decline.\n- Neutral rates likely turned negative during the Global Financial Crisis.\n- Neutral rates are expected to increase only gradually going forward."
    },
    {
      "heading": "Policy-Relevant Implications",
      "content": "- Conventional estimates that ignore shadow rates and prior information on potential output may misstate unobserved variables such as the neutral real rate and output gap.\n- Accounting for unconventional monetary policy at the ZLB (via shadow rates) yields more plausible dynamics for neutral rates and policy stance.\n- Persistent low neutral rates imply a constrained buffer for conventional monetary policy normalization and highlight the importance of macroprudential, fiscal, and structural policies to support demand and potential growth.\n\n---\n\n Content in this bundle\n\n- wp15135\n  - wp15135 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp15135 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/lower-for-longer-neutral-rates-in-the-united-states-43026"
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    "Authors: Andrea Pescatori, Jarkko Turunen",
    "Published: June 24, 2015",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513508382.001",
    "Study uses a semi structural model to estimate neutral rates in the United States.",
    "Bayesian estimation incorporates prior information on the output gap and potential output (based on a production function approach).",
    "Unconventional monetary policies at the ZLB are accounted for using estimates of “shadow” policy rates.",
    "The approach provides more plausible results than standard maximum likelihood estimates for the unobserved variables in the model.",
    "Results show a significant trend decline in the neutral real rate over time, driven only in part by a decline in potential growth; other factors (including excess global savings) matter.",
    "Neutral rates likely turned negative during the Global Financial Crisis and are expected to increase only gradually looking forward.",
    "Semi structural model framework.",
    "Bayesian estimation that:",
    "Adjustment for zero lower bound (ZLB) monetary policy by using “shadow” policy rate estimates.",
    "Comparison with standard maximum likelihood estimation for unobserved variables.",
    "Significant trend decline in the neutral real rate over time.",
    "Decline in potential growth explains only part of the decline in the neutral real rate.",
    "Other factors, including excess global savings, contribute to the decline.",
    "Neutral rates likely turned negative during the Global Financial Crisis.",
    "Neutral rates are expected to increase only gradually going forward.",
    "Conventional estimates that ignore shadow rates and prior information on potential output may misstate unobserved variables such as the neutral real rate and output gap.",
    "Accounting for unconventional monetary policy at the ZLB (via shadow rates) yields more plausible dynamics for neutral rates and policy stance.",
    "Persistent low neutral rates imply a constrained buffer for conventional monetary policy normalization and highlight the importance of macroprudential, fiscal, and structural policies to support demand and potential growth.",
    "**_wp15135**"
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