Abstract
AbstractIn 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.
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