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Mr. Nicolas E Magud and Ms. Evridiki Tsounta
This paper estimates neutral real interest rate (NRIR) ranges for 10 Latin American countries that either have full-fledged inflation targeting regimes in place or have recently adopted them, using an array of methodologies commonly used in the literature. We find that NRIRs have declined in the last decade, with more economically and financially developed economies exhibiting lower NRIR levels. Based on the estimated NRIRs, we assess that the current monetary stance (measured by the interest rate gap) is appropriately neutral in most of the considered economies, in line with closing output gaps. We also observe that the interest rate gap can be a good predictor of future inflation dynamics and economic growth. In addition, looking at the recent experiences in Brazil and Peru, we suggest that macro-prudential policies could affect the monetary stance even in the absence of direct interest rate changes, through affecting the NRIR.
Mr. Roberto Perrelli and Mr. Shaun K. Roache

Interest Gap, 2003–13 4. Slope of the Yield Curve, 2006–13 5. Neutral Real Interest Rate Based on State Space Model, 2006–13 6. Determinants of Long-Run Equilibrium Real Interest Rate, 2005–13 7. Inflation Surprise and Inflation Gap, 2005–13 8. Short- and Long-Run Equilibrium Real Interest Rates, 2005–13 9. Small Model: Scenarios for Neutral Rates 10. Falling Neutral Real Interest Rates in a Small Monetary Model: Scenarios 11. Scenario 3: Actual Real Interest Rate Gaps Under Different Policy Rules References