The forecasting power of real interest rate gaps: an assessment for the Euro area
The real Interest Rate Gap (IRG)-the gap between the short-term real interest rate and its 'natural' level-is a theoretical concept that has attracted much attention in central banks in recent years. This article aims at clarifying its practical relevance for monetary policy in real time. For this purpose, it provides an empirical assessment of the usefulness of a semi-structural versus purely statistical estimates of the real IRG for predicting policy relevant macroeconomic variables in the Euro area. However mixed, the results confirm that semi-structural estimates of the real IRG deserve being added to the central banks' toolbox.
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Document Type: Research Article
Affiliations: Research Directorate, Banque de France, Monetary Policy Research Division, 41-1422 Pomone, Paris Cedex 01, France
Publication date: 2011-01-01