A New Normal for Interest Rates? Evidence from Inflation-Indexed Debt

Jens Christensen and Glenn Rudebusch

No 2017-07, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: The downtrend in U.S. interest rates over the past two decades may partly reflect a decline in the longer-run equilibrium real rate of interest. We examine this issue using dynamic term structure models that account for time-varying term and liquidity risk premiums and are estimated directly from prices of individual inflation-indexed bonds. Our finance-based approach avoids two potential pitfalls of previous macroeconomic analyses: structural breaks at the zero lower bound and misspecification of output and inflation dynamics. We estimate that the longer-run equilibrium real rate has fallen about 2 percentage points and appears unlikely to rise quickly.

JEL-codes: E44 G01 G21 N20 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2018-11-29
New Economics Papers: this item is included in nep-cba
Note: The first version of this paper was published May 15, 2017.
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.frbsf.org/economic-research/files/wp2017-07.pdf Full text - article PDF (application/pdf)

Related works:
Journal Article: A New Normal for Interest Rates? Evidence from Inflation-Indexed Debt (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2017-07

Ordering information: This working paper can be ordered from

DOI: 10.24148/wp2017-07

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().