Estimates of Potential Output and the Neutral Rate for the U.S. Economy
IMF Working Papers, July 6, 2018
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- Estimates of Potential Output and the Neutral Rate for the U.S. Economy
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- Authors: Ali Alichi, Rania A. Al-Mashat, Hayk Avetisyan, Jaromir Benes, Olivier Bizimana, Aram Butavyan, Robert Ford, Narek Ghazaryan, Vahagn Grigoryan, Mane Harutyunyan, Anahit Hovhannisyan, Edgar Hovhannisyan, Hayk Karapetyan, Mariam Kharaishvili, Douglas Laxton, Akaki Liqokeli, Karolina Matikyan, Gevorg Minasyan, Shalva Mkhatrishvili, Armen Nurbekyan, Andrei Orlov, Babken Pashinyan, Garik Petrosyan, Yekaterina Rezepina, Aleksandr Shirkhanyan, Tamta Sopromadze, Lusine Torosyan, Erik Vardanyan, Hou Wang, Jiaxiong Yao
- Published: July 6, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484366325.001
Summary
- Estimates of potential output and the neutral short-term interest rate play important roles in policy making.
- Such estimates are associated with significant uncertainty and subject to significant revisions.
- This paper extends the structural multivariate filter methodology by adding a monetary policy block, which allows estimating the neutral rate of interest for the U.S. economy.
- The addition of the monetary policy block further improves the reliability of the structural multivariate filter.
Methodology
- Extension of the structural multivariate filter methodology.
- Addition of a monetary policy block to the model to enable estimation of the neutral short-term interest rate.
- Use of a multivariate structural filtering approach to extract potential output and the output gap.
Key Findings
- The monetary policy block permits direct estimation of the neutral rate of interest for the U.S. economy.
- Incorporating the monetary policy block improves the reliability of the structural multivariate filter.
- Estimates of potential output and the neutral rate remain subject to significant uncertainty and revisions.
Policy Implications and Themes
- Improved estimation of the neutral short-term interest rate can inform monetary policy decisions.
- Recognizing the significant uncertainty and revision risk in estimates is important for policy formulation.
- Relevant themes addressed: Capacity utilization, Inflation, Inflation targeting, Monetary policy, Output gap, Potential output, Prices, Production, Real interest rates.
Content in this bundle
- Estimates of Potential Output and the Neutral Rate for the U.S. Economy, WP/18/152, July 2018