Lower for Longer: Neutral Rates in the United States

• Author: Andrea Pescatori - Jarkko Turunen
• Pages: 1-3

IMFIMF

Volume 16, Number 3 September 2015

www.imf.org/researchbulletin

B U L L E T I N

1

Economic Principles for Resource

Revenue Management

Anthony J. Venables and Samuel Wills1

This article ex plores strategies for managing

revenue from natural resources, foc using on

the balance between dome stic and foreign asset

accumulation. It sugge sts that domestic asset

accumulation is the pri ority, while there are

three motives for accumulating foreign a ssets:

inter-generational transfer, parking fund s, and stabilization. The paper argues

that the first of these is inap propriate for low income countries. The second i s

required if it is difficult to a bsorb extra spending in the domestic economy and

takes time to build up domes tic investment. The third is important, and depend s

on the extent to which the economy has othe r ways of adjusting to shocks.

The recent commodity super-cycle saw oil price s rise from below US$30 per

barrel in 2003 to over US$100 per barrel in 2011, before falling to US$50 per

Lower for Longer: Neutral Rates in

the United States

Andrea Pescatori and Jarkko Turunen

We use a semi-structural model to estim ate

neutral rates in the United States. Our Bayesian

estimation incorporates pr ior information on

the output gap and potential output (ba sed on

a production function approa ch) and accounts

for unconventional monetary polici es by using

estimates of “shadow” polic y rates. Our results show a signif icant trend decline

in the neutral real rate over time. Estimated ne utral rates turned negative

during the global financ ial crisis and are projec ted to increase gradually going

forward. The results sup port the use of unconventional monetary policies to

provide extraordinary ac commodation during the crisis period and a g radual

normalization in policy lo oking forward. The decline in neutral rates is driven only

in part by lower potential g rowth since other factors, su ch as excess global savings

and higher risk aversion , have also contributed to the decline.

In This Issue

1 Lower for Longer: Neutral

Rates in the United States

1 Economic Principles

for Resource Revenue

Management

6 Q&A: Seven Questions on

Financing for

Development

11 Annual Research

Conference

12 IMF Working Papers

16 IMF Economic Review

17 Recommended Readings

from IMF Publications

18 Staff Discussion Notes

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Research Summaries

1 Anthony J. Venables and Samuel Wil ls are both at the Oxford C entre for the Analysis of

Resource Rich E conomics, Department of Ec onomics, University of Oxford.