Neutral Interest Rates Estimation for OECD Countreis

The modelling approach of this thesis estimates the neutral interest rates and its determinants for four major OECD economies: US, Canada, Australia and New Zealand yields the following key results. The striking difference of this analysis is the focus on long-term rather than short-term neutral rates, the use of HP filter to estimate the potential level of output and significant determinants. First, the evidence suggests that there is a downward trend in estimated natural rates of interest: towards the end of all the samples, the estimated long-term real neutral interest rates in the economies of interest have fallen to historically low levels. No evidence is obtained of whether or not the natural rates will provide an upward movement recently. Secondly, different significant variables obtained for each particular country, though not all the variables are significant leaving area for further research for the applicable determinants of real long-run interest rate. Finally, the estimates of the real long-term neural interest rate are highly imprecise, supporting a key conclusion that neutral rate estimation should be used together with other variables for more precise forecasts.