tag:blogger.com,1999:blog-5713178645208582139.post601238448996756421..comments2020-06-03T15:23:45.228-05:00Comments on Macro Musings Blog: Farewell Secular StagnationDavid Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-5713178645208582139.post-90733360808492441752015-01-06T06:53:22.522-06:002015-01-06T06:53:22.522-06:00Eric, to be precise, the expected real, risk-free ...Eric, to be precise, the expected real, risk-free rate--the measure I use--is an estimate of the expected average short-term natural rate over the same horizon. Thus, since I am using the expected real, risk-free 10-year rate is an estimate of the short-term real natural interest average over the next ten years. <br /><br />Though it is only an estimate, it gives really reasonable results David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-24595306485655674702015-01-05T16:53:51.600-06:002015-01-05T16:53:51.600-06:00I suspect you agree that the expected real short r...I suspect you agree that the expected real short rate is not identical to the natural rate. Maybe it's an impressionistic estimate of the natural rate--a rate corresponding to some hypothetical outcome of an unfettered market process that would equilibrate the supply and demand of loanable funds. Clearly adjusting the nominal rate by reference to a crude, ultra-aggregated measure of consumer Eric Dennishttps://www.blogger.com/profile/14083156630953907855noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-27749629507864081922015-01-05T16:52:26.577-06:002015-01-05T16:52:26.577-06:00This comment has been removed by the author.Eric Dennishttps://www.blogger.com/profile/14083156630953907855noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-86131153854880490282015-01-04T23:37:40.660-06:002015-01-04T23:37:40.660-06:00Eric, a couple of points. First, the authors also ...Eric, a couple of points. First, the authors also call the term premium the risk premium. If you look at the Kim-Wright estimates they do the same. So I don't think I am being innovative here.<br /><br />Second, regarding this "But you are making an extra assertion: that the natural rate is equal to real interest rate minus a risk premium, which you define as just the term premium."David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-74244457162657210032015-01-04T23:04:32.052-06:002015-01-04T23:04:32.052-06:00Yes it's clear from that link and your other l...Yes it's clear from that link and your other link on ACM that they are attempting merely to estimate the term premium. But you are making an extra assertion: that the natural rate is equal to real interest rate minus a risk premium, which you define as just the term premium. What is the justification for this asserted relationship between natural and real rates?<br /><br />In your other link Eric Dennishttps://www.blogger.com/profile/14083156630953907855noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-71375085849453594532015-01-04T22:37:55.249-06:002015-01-04T22:37:55.249-06:00Eric, the risk premium measure I use comes from th...Eric, the risk premium measure I use comes from the ACM source cited above. For them, it is an attempt at measuring the term premium. See http://libertystreeteconomics.newyorkfed.org/2014/05/treasury-term-premia-1961-present.html#.VKoVCivF-SoDavid Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-66377868846510764512015-01-04T22:18:46.539-06:002015-01-04T22:18:46.539-06:00Thanks for the extra info. It does make sense that...Thanks for the extra info. It does make sense that what you're really after is some estimate of the natural interest rate, and actually I like the methodology you outline in the first link--basically taking NGDP stability over the Great Moderation to imply that the natural rate is identical to the fed target rate, so that you can regress on fundamental measures of productivity, etc. Still, itEric Dennishttps://www.blogger.com/profile/14083156630953907855noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-37906732611301360302015-01-03T20:26:46.626-06:002015-01-03T20:26:46.626-06:00Eric, what I am doing is taking the observed treas...Eric, what I am doing is taking the observed treasury yield and subtracting from it (1) expected inflation and (2) the risk premium. The risk premium is a catch-all category that here means the same thing as the term premium. For (1) I use the Phildelphia Fed's Survey of Forecasters and for (2) the risk premium measure from Adrian, Crump, and Moench (2013) referenced above. (You can download David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-30712743306667222692015-01-03T11:46:01.405-06:002015-01-03T11:46:01.405-06:00Can you elaborate on this adjusted interest rate t...Can you elaborate on this adjusted interest rate that you are calculating? You variously call it the "risk-free" and the "risk-neutral" rate, which are two different things. The risk-free rate usually means something like the Treasury rate, since the US government has negligible default risk in this context. There is the term premium, but of course that can be avoided by just Eric Dennishttps://www.blogger.com/profile/14083156630953907855noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-58772330027295385272015-01-01T19:02:55.375-06:002015-01-01T19:02:55.375-06:00Andy, what is central to this debate is the natura...Andy, what is central to this debate is the natural interest rate, the rate determined by expected productivity growth, expected labor force growth, and household discount rates. These determinants are what is being debated: has trend productivity changed, has the labor force growth slowed down, etc. Larry Summers and Robert Gordon say yes, I see evidence to the contrary. You can't answer David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-64096376005669065632015-01-01T17:32:18.760-06:002015-01-01T17:32:18.760-06:00I don't think risk-adjusted rates are the righ...I don't think risk-adjusted rates are the right measure. Or rather, what you have provided is not an argument against secular stagnation but an alternative explanation for it. To my mind, the problem of secular stagnation is essentially the problem of equilibrium (non-risk-adjusted) nominal interest rates being too low, so that (since they vacillate over time with the business cycle, etc.) Andy Harlesshttps://www.blogger.com/profile/17582263872850949568noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-80187974031943911962015-01-01T16:01:08.306-06:002015-01-01T16:01:08.306-06:00"I bring all of this up as a way to motivate ..."I bring all of this up as a way to motivate a prediction for 2015: secular stagnation will fade from the national conversation for the U.S. economy. Instead, the conversation will focus even more on how to handle the advent of an increasingly digitized, automated economy where productivity growth is rapid and neutral interest rates are rising. Secular stagnation, in other words, is about toAnonymousnoreply@blogger.com