Norges Bank

Working Paper

Estimating the natural rates in a simple New Keynesian framework

Hilde C. Bjørnland, Kai Leitemo and Junior Maih
Working Paper

The time-varying natural rate of interest and output and the implied mediumterm inflation target for the US economy are estimated over the period 1983-2005.
The estimation is conducted within the New-Keynesian framework using Bayesian and Kalman-filter estimation techniques. With the model-consistent estimate of the output gap, we get a small weight on the backward-looking component of the New-Keynesian Phillips curve – similar to what is obtained in studies which use labor share of income as a driver for inflation (e.g., Galì et al., 2001, 2003). The turning points of the business cycle are nevertheless broadly consistent with those of CBO/NBER. We find considerable variation in the natural rate of interest while the inflation target has been close to 2% over the last decade.

Norges Bank’s working papers present research projects and reports that are generally not in their final form. Other analyses by Norges Bank’s economists are also included in the series. The views and conclusions in these documents are those of the authors.

Norges Bank’s Working Papers can also be found in Norges Bank's publication archive, RepEc and BIS Central Bank Research Hub

ISSN 1502-8190 (online)

Published 21 December 2007 14:15
Published 21 December 2007 14:15