Natural Rate of Interest in a Nonlinear DSGE Model (joint with Yasuo Hirose)

Category: Money and Macro Brown Bag Seminar
When: 12 January 2017
, 12:00
 - 13:00
Where: Dubai (HoF 1.27)
Speaker: Takeki Sunakawa (Kobe University)


This paper investigates how and to what extent nonlinearity including the zero lower bound on the nominal interest rate affects the estimates of the natural rate of interest in a New Keynesian model. We find that the estimated natural rate of interest in a nonlinear model is substantially different from that in its linear counterpart due to uncertainty stemming from the zero lower bound, and that other nonlinearities such as price and wage dispersion, from which a linear model abstracts, play a minor role in identifying the natural rate.