Estimates of the Natural Rate of Interest for Russia: Is Navigating by the Stars Useful?

Alexey Porshakov, Bank of Russia, Andrey Sinyakov, Bank of Russia
2019 Russian Journal of Money and Finance  
We estimate the natural rate of interest for Russia in the short term and long term using three definitions of the rate and discuss the possible implications of the results for monetary policy. To start with, we consider partial equilibrium (under no-arbitrage condition), which is presented in the papers on estimating the natural rate. The estimates turn out to be extremely sensitive to assumptions about model parameters. The estimates based on the uncovered interest rate parity, though
more » ... t only on observable (market) variables, impose an additional strong assumption of the path of the future equilibrium exchange rate. We supplement these calculations with calculations in panel data (for long-term equilibrium) and using semi-structural methods (for current equilibrium). To get estimates according to the strict definition of the natural rate we estimate a real business cycle model of the resource-based economy with investments using Russian data. All the estimates are highly uncertain. Taking into account the latter, the central bank should use robust monetary policy rules and avoid communicating the natural rate at least until there has been a sufficient history of business cycles in Russia. 1 The authors are grateful to Sergei Seleznev (Bank of Russia) and Dmitry Kreptsev (Yandex) for their help in carrying out calculations during the preparation of the first version of this article. The content expressed in this paper is solely those of the authors and does not necessarily reflect the official position of the Bank of Russia. All errors and inaccuracies are the authors' own. december 2019 Porshakov, sinyakov: EstimatEs of thE natural ratE of intErEst for russia, PP. 3-47 v.78 № 4 5 Porshakov, sinyakov: EstimatEs of thE natural ratE of intErEst for russia, PP. 3-47 v.78 № 4 7
doi:10.31477/rjmf.201904.03 fatcat:cd5pk3otcvdwndfvxhr3fsvju4