Title: Low frequency drivers of the real interest rate: A band spectrum regression approach
Authors: Fabio Busetti - Banca d'Italia (Italy) [presenting]
Abstract: An empirical analysis on the underlying drivers of the real interest rate in advanced economies over the last 35 years is presented. We adopt a band spectrum regression approach, which allows to study the link between the real interest rate and its determinants only over low frequencies, leaving aside the business cycle fluctuations and the high frequency noise. Our findings indicate that most of the long-term movements of real interest rates are explained by the evolution of total factor productivity (with a specific role for human capital accumulation) and demography. Monetary policy developments and changes in income inequality on the other hand play a limited role. According to our estimates, over recent years the natural rate of interest remained positive in US and UK but fell below zero in the euro area and Japan.