Natural Rate of Interest with Endogenous Growth, Financial Frictions and Trend Inflation

Lorena Olmos () and Marcos Sanso Frago

MPRA Paper from University Library of Munich, Germany

Abstract: Given the unobservable quality of the natural rate of interest, the consequences of central banks using an incorrect value in the monetary policy rule are analyzed in a New Keynesian DSGE model with endogenous growth, financial frictions and trend inflation. Our results confirm the financial structure plays a key role in the determination of the natural rate of interest and show that the mismeasurements affect the long-run growth rate by modifying the actual inflation rate trend, which is different from the target. Finally, we develop a mechanism to monitor the accuracy of the natural rate estimate.

Keywords: natural rate of interest; New Keynesian DSGE models; endogenous growth; �financial frictions; trend inflation (search for similar items in EconPapers)
JEL-codes: E43 E44 E58 O40 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fdg, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:57212

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