Template-Type: ReDIF-Paper 1.0

Author-Name: Dmitry Kreptsev
Author-Email: KreptsevDA@cbr.ru
Author-Workplace-Name: Bank of Russia, Russian Federation

Author-Name: Alexey Porshakov
Author-Email: PorshakovAS@cbr.ru
Author-Workplace-Name: Bank of Russia, Russian Federation

Author-Name: Sergey Seleznev
Author-Email: SeleznevSM@cbr.ru
Author-Workplace-Name: Bank of Russia, Russian Federation

Author-Name: Andrey Sinyakov
Author-Email: SinyakovAA@cbr.ru
Author-Workplace-Name: Bank of Russia, Russian Federation

Title: The equilibrium interest rate: a measurement for Russia
Abstract: The aim of this paper is to measure the equilibrium interest rate for Russia both in the short and long run, based on three definitions of the equilibrium interest rate. A general equilibrium model for the Russian economy is being built and gauged. In this real business cycle of a commodity-centred economy with investment, we find that short-run estimates come with very extended confidence intervals (approx. +/-10 pp). In the long run, equilibrium interest rates in the model are set by one of its equilibrium conditions, which in practice will often be applied discretely to find the equilibrium interest rate. This condition-based estimate comes very sensitive to unknown parameters, and is also very uncertain. Additionally, we use the general equilibrium model to study how the equilibrium interest rate reacts to changing oil prices, a rising global rate and growth in consumers’ propensity to save. These calculations complement with panel data-based calculations (those for the long-run equilibrium) and computation built on semi-structural methods (for the current equilibrium). Such estimates are also characterised by a high, for practical purposes, degree of uncertainty for the long-run equilibrium, with its point estimates equalling to 1.0% è 3.0%. The point estimate of the current equilibrium short interest rate based on semi-structural methods comes at the level of around 0.5%, and the one derived from the interest rate parity is 2.7%. The uncertainty in the measures of equilibrium interest rates calls for a central bank to apply robust monetary policy rules.

Length: 55 pages
Creation-Date: 2016-07
Revision-Date:
Publication-Status:
File-URL: http://www.cbr.ru/Content/Document/File/87567/wps_13_e.pdf
File-Format: Application/pdf
File-Function:
Number:wps13
Classification-JEL: E32, E43, E52
Keywords: equilibrium (natural) interest rate, real business cycle with investment model, potential GDP growth, uncovered interest rate parity, minor open economy of a commodity exporting country
Handle:RePEc:bkr:wpaper:wps13