March 2023 issue contents
The Natural Rate of Interest in a Non-linear DSGE Model

Yasuo Hirosea  and Takeki Sunakawab


This paper investigates how and to what extent nonlinearities, including the zero lower bound on the nominal interest rate, affect the estimate of the U.S. natural rate of interest in a dynamic stochastic general equilibrium model. The estimated natural rate in a non-linear model is substantially different from that in its linear counterpart after the global financial crisis because of the zero lower bound. Other non-linearities such as price and wage dispersion, from which a linear model abstracts, play a negligible role in identifying the natural rate.

JEL Code: C32, E31, E43, E52

 Keio University 
b  Hitotsubashi University