Measuring the natural yield curve

We generalize the concept of the natural rate of interest (Laubach and Williams, 2003; Woodford, 2003) by defining and estimating the natural yield curve (NYC) -- the term structure of natural interest rates. Our motivation stems i.a. from the observation that at times when central banks attempt to directly affect long-term interest rates (e.g. via quantitative easing) the gap between the short-term real and natural rate is no more a good indicator of the monetary policy stance. We estimate the NYC on US data, document its main properties and show i.a. that in the period 2008 to 2011 the NYC allows to better capture the US monetary policy stance than the short-term natural rate.