Abstract
In this article, I argue that shifts in the natural rate of interest provide important insights for
the New Keynesian Phillips Curve (NKPC). The deviation of the real interest rate from the
natural interest rate (interest rate gap) captures the monetary policy stance, which
is important for the dynamics of inflation and the output gap in the wake of persistent and
permanent variation in the natural rate of interest. I present the evolution of the
estimates of the Taylor‐rule consistent‐ natural interest rate, and thus the associated path
of the expectations of future inflation via the Fisherian relationship. The path of these two
variables has implications for estimation of the NKPC.
the New Keynesian Phillips Curve (NKPC). The deviation of the real interest rate from the
natural interest rate (interest rate gap) captures the monetary policy stance, which
is important for the dynamics of inflation and the output gap in the wake of persistent and
permanent variation in the natural rate of interest. I present the evolution of the
estimates of the Taylor‐rule consistent‐ natural interest rate, and thus the associated path
of the expectations of future inflation via the Fisherian relationship. The path of these two
variables has implications for estimation of the NKPC.
| Original language | English |
|---|---|
| Pages (from-to) | 1 |
| Number of pages | 8 |
| Journal | Australian Economic Review |
| DOIs | |
| Publication status | Published - 2 Aug 2024 |