This paper proposes a new method of estimating the Taylor rule with a time-varying implicit inflation target and a time-varying natural rate of interest. The inflation target and the natural rate are modeled as random walks and are estimated using maximum likelihood and the Kalman filter. I...

Estimates of the natural interest rate are often useful in the analysis of monetary and other macroeconomic policies. The topic gathered much attention following the great financial crisis and the Euro Area debt crisis due to the uncertainty regarding the timing of monetary policy normalization...

This paper estimates the neutral interest rate in the Kyrgyz Republic using a range of methodologies. Results indicate that the real neutral rate is about 4 percent based on an average of models and 3.7 percent based on a Quarterly Projection Model. This is higher than in many emerging markets...

Investors seek to hedge against interest rate risk by taking long or short positions on bonds ofdifferent maturities. We study changes in risk taking behavior in a low interest rateenvironment by estimating a market stochastic discount factor that is non-linear and thereforeconsistent with the...

Most short-term interest rates in the Euro area are below the European Central Bank deposit facility rate, the rate at which the central bank remunerates banks' excess reserves. This unexpected development coincided with the start of the Public Sector Purchase Program (PSPP). In this paper, we...

A prolonged low-interest-rate environment presents a significant challenge to banks and is likely to entail major changes to their business models over the long-run. Lower returns to maturity transformation in the face of flatter yield curves and an inability to offer deposit rates significantly...

Monetary policy space remains constrained by the lower bound in many countries, limitingthe policy options available to address future deflationary shocks. The existence of cashprevents central banks from cutting interest rates much below zero. In this paper, we considerthe practical feasibility...

Demographic developments have been regarded as one important cause of the long-termmovement in global interest rates. This paper provides empirical evidence of therelationship between demographics and interest rates over a wide sample of advanced andemerging market economies. It also finds that...

After 2007, countries that cut their policy interest rates close to zero turned, amongother policies, to forward guidance. We estimate a two-country model of the U.S. andCanada to quantify how unexpected changes in U.S. forward guidance affected Canada.Expansionary U.S. forward guidance shocks,...

In this paper, we investigate how negative interest rate policy (NIRP) introduced in January2016 by the Bank of Japan (BoJ) affected Japanese banks' lending and risk taking behavior.The BoJ's announcement was an unexpected surprise to the market and was followed by asharp drop in equity prices...