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Title: Financial factors and the natural rate of interest puzzle Authors:  Gauthier Vermandel - Paris-Dauphine & PSL Universities (France)
Josselin Roman - Paris Dauphine and PSL Universities (France) [presenting]
Abstract: The aim is to develop and estimate a DSGE model for the US economy to study the natural rate of interest and its drivers under financial frictions. We get three main results. First, the analysis shows that permanent shocks, that capture a secular stagnation effect, are not a critical driver of the natural rate. Second, the persistent low level of the natural rate after the financial crisis finds its roots in the very long-lasting nature of financial shocks through a super debt-cycle mechanism. Third, we find that the effectiveness of the unconventional monetary policy in stabilizing the natural rate is conditional on the type of shocks. In particular, a credit policy is effective in offsetting financial and supply shocks.