The role of the natural rate of interest in monetary policy

Jeffery Amato
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Jeffery Amato: Goldman Sachs International

No 171, BIS Working Papers from Bank for International Settlements

Abstract: This paper examines the role of the natural rate of interest in the conduct of monetary policy. The natural rate figures prominently in many theories of the business cycle and of inflation fluctuations, and therefore has the potential to play a key role in monetary policy given the current mandates of many central banks. However, the presence of financial imperfections and measurement uncertainty draw into question whether estimates of the natural rate can be reliable indicators of excess demand pressures. Natural rate-based theories may, nonetheless, provide useful guidance in the formulation of desirable monetary policies.

Keywords: real interest rate; interest rate rules; Wicksell; New Keynesian models; financial imperfections (search for similar items in EconPapers)
JEL-codes: E21 E31 E32 E43 E52 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2005-03
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Citations: View citations in EconPapers (50)

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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:171

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