Finding the equilibrium real interest rate in a fog of policy deviations
Authors: John B. Taylor and Volker Wieland
From: Stanford University – Goethe University of Frankfurt
In this paper, Beyer and Wieland employ the methodology of Laubach and Williams (2003) and a modified version due to Garnier and Wilhelmsen (2009) to obtain new estimates of the medium-term equilibrium real interest rate for the US, the euro area and Germany. Then, they examine the sensitivity of such estimates by considering different specifications regarding parameters, technical assumptions and data series. They conclude that the decline in medium-run equilibrium rate estimates is much too uncertain to be used as the key factor for determining the appropriate monetary policy stance.
Instability, imprecision and inconsistent use of equilibrium real interest rate estimates
Authors: Robert C. M. Beyer, and Volker Wieland
From: The World Bank – Goethe University of Frankfurt
The” difference” monetary policy rule
In a world where policymakers have an imperfect understanding of the levels of the equilibrium real interest rates, Williams suggests for central banks to follow the “difference” monetary policy rule. This policy rule is similar to Taylor’s (1993) but instead of responding to deviations of inflation from a target rate, it responds to deviations of the level of prices relative to a steadily growing target level.
Preparing for the Next Storm: Reassessing Frameworks and Strategies in a Low R-star World
By: John C. Williams – Federal Reserve Bank of San Francisco
