Natural Real Interest Rate in an Open Small Economy: the Costa Rica´s Case

Carlos Segura-Rodriguez ()
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Carlos Segura-Rodriguez: Department of Economic Research, Central Bank of Costa Rica

No 2403, Notas Técnicas from Banco Central de Costa Rica

Abstract: This study updates the Costa Rica’s natural real interest rate (NRIT) estimate for the period between 2010’s first quarter and 2023’s third quarter. I use two different methodologies for this estimation: Holston, Laubach and Williams (2023)’s semi-structural model and a structural VAR proposed by Brzoza-Brzezina (2002). This study’s methodological contribution is to estimate an extension of Holston-Laubach-Williams framework to incorporate conditions that are inherent in an open and small economy. The main result is that the natural real interest rate has oscilated between 1, 18% and 1, 47% during the period in analysis, and has been in the interval between 1, 36% and 1, 44% after 2022. Further, I check that the real interest rate gap correlation with other economic variables, like output gap, inflation and real exchange gap, shows a sign that is expected. Finally, I conclude that the Central Bank’s monetary policy has been consistent with its objective of maintaning a low inflation.

Keywords: Natural Interest Rate; Monetary Policy; Open Small Economy; Tasa de interés natural; Política monetaria; Economía abierta y pequeña (search for similar items in EconPapers)
JEL-codes: E31 E52 F41 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2024-02
New Economics Papers: this item is included in nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:apk:nottec:2403

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