English, Article, Journal or magazine article edition: The predictive content of the real interest rate gap for macroeconomic variables in the euro area Jean-Stéphane MESONNIER

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Bookmark: http://trove.nla.gov.au/version/34471
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • The predictive content of the real interest rate gap for macroeconomic variables in the euro area
Author
  • Jean-Stéphane MESONNIER
Physical Description
  • preprint
Notes
  • The real interest rate gap -IRG-, i.e. the gap between the short term real interest rate and its “natural†level, is a theoretical concept of potential policy relevance for central banks, at least to evaluate the monetary policy stance, at best as a guideline for policy moves. This paper aims at clarifying the practical relevance of IRG indicators for monetary policy. To this end, it provides an empirical assessment of the usefulness of various univariate and multivariate estimates of the real IRG for predicting inflation, real activity and real credit growth in the euro area. On the basis of out-of-sample evidence using real-time data, I find that IRG measures are globally of little help to improve our knowledge of future inflation in the euro area. By contrast, some of the estimated IRG measures exhibit a significant predictive power for future real activity, in line with the intuition from a traditional IS curve, as well as for credit growth. Nevertheless, in most cases, the forecasting models that include estimated IRG do not outperform a simpler AR model augmented with the first difference of the nominal interest rate
  • natural rate of interest, monetary policy, forecasting
  • RePEc:mmf:mmfc06:102
Language
  • English
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