{"title":"A National Balance Sheet Approach to the Natural Rate of Interest","authors":"Robert S. Goldberg, M. Torras","doi":"10.3905/jfi.2023.1.161","DOIUrl":null,"url":null,"abstract":"The authors present a new estimation method for the “natural” interest rate and estimate its value for the US economy from 1961 to 2020. Presuming theoretical balance between returns on national assets and cost of national capital, the authors use US balance sheet information to derive a “breakeven” or implicit fundamental risk-free rate. Because, unlike r-star (r*), our rate does not presume conditions of full employment, its value should generally be lower than that of r*. The authors find, however, that our rate has remained above r* for much of the past 25 years, suggesting that the Federal Reserve’s accommodative policy for the past two decades has been more aggressive than previously believed. Understanding the difference between our natural rate, r*, and current market rates is critical for proper decisions in the fixed income markets.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"33 1","pages":"106 - 119"},"PeriodicalIF":0.0000,"publicationDate":"2023-05-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Fixed Income","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.3905/jfi.2023.1.161","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0
Abstract
The authors present a new estimation method for the “natural” interest rate and estimate its value for the US economy from 1961 to 2020. Presuming theoretical balance between returns on national assets and cost of national capital, the authors use US balance sheet information to derive a “breakeven” or implicit fundamental risk-free rate. Because, unlike r-star (r*), our rate does not presume conditions of full employment, its value should generally be lower than that of r*. The authors find, however, that our rate has remained above r* for much of the past 25 years, suggesting that the Federal Reserve’s accommodative policy for the past two decades has been more aggressive than previously believed. Understanding the difference between our natural rate, r*, and current market rates is critical for proper decisions in the fixed income markets.
期刊介绍:
The Journal of Fixed Income (JFI) provides sophisticated analytical research and case studies on bond instruments of all types – investment grade, high-yield, municipals, ABSs and MBSs, and structured products like CDOs and credit derivatives. Industry experts offer detailed models and analysis on fixed income structuring, performance tracking, and risk management. JFI keeps you on the front line of fixed income practices by: •Staying current on the cutting edge of fixed income markets •Managing your bond portfolios more efficiently •Evaluating interest rate strategies and manage interest rate risk •Gaining insights into the risk profile of structured products.