Yield curve data can improve estimates of r* – IMF paper
Results suggest r* has risen and help explain ‘soft landings’ after inflation surge
Adding yield curve data to models of the natural rate of interest (r*) can produce better estimates and shed light on recent central bank policy decisions, research published by the International Monetary Fund finds.
The working paper, published on August 7, explores the post-pandemic inflation surge in Europe and the US. Authors Mátyás Farkas, Zoltán Jakab and Jesper Lindé take an existing model of r*, developed by Marco Del Negro, and add data on expected interest rates. As defined in the paper
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