FRBSF Economic Letters

Economic analysis for a general audience

John C. Williams


The decline in the natural rate of interest, or r-star, over the past decade raises three important questions. First, is this low level for the real short-term interest rate unique to the U.S. economy? Second, is the natural rate likely to remain low in the future? And third, is this low level confined to “safe” assets? In answer to these questions, evidence suggests that low r-star is a global phenomenon, is likely to be very persistent, and is not confined only to safe assets.

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Working Papers

The latest in economic research

Philippe Aghion, Antonin Bergeaud, Timo Boppart, Peter J. Klenow, and Huiyu Li

Statistical agencies typically impute inflation for disappearing products from the inflation rate for surviving products. As some products disappear precisely because they are displaced by better products, inflation may be lower at these points than for surviving products. As a result, creative destruction may result in overstated inflation and understated growth. We use a simple model to relate this “missing growth” to the frequency and size of various kinds of innovations. Using U.S. Census data, we then apply two ways of assessing the magnitude of missing growth for all private nonfarm businesses for 1983-2013. The first approach exploits information on the market share of surviving plants. The second approach applies indirect inference to firm-level data. We find: (i) missing growth from imputation is Substantial–0.5 percentage points per year when using the first approach, 1 percentage point per year using the second method; and (ii) almost all of the missing growth is due to creative destruction (as opposed to new varieties).

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