MEASURING THE WORLD NATURAL RATE OF INTEREST

This article makes the first attempt to estimate the time‐varying natural rate jointly with the output gap and trend potential output growth for the world as a whole using a simple unobserved components model broadly following the methodology developed by Laubach, T., and J. Williams (“Measuring the Natural Rate of Interest.” Review of Economics and Statistics, 85(4), 2003, 1063–1070). We find that the world natural rate has been trending down for the past few decades. Over a quarter of the variation in the natural rate is accounted for by the trend potential output growth rate. However, the relationship between the world natural interest rate and the world trend growth is modest and not statistically significant. (JEL E4, E52, E32, C32)