R* in East Asia: business, financial cycles, and spillovers

Pierre L Siklos, Dora Xia and Hongyi Chen

No 1285, BIS Working Papers from Bank for International Settlements

Abstract: This paper provides new estimates of the neutral interest rate, or r*, with a frequency domain approach using quarterly data from China, Japan, Korea, and the US. Utilizing band spectrum regressions, we estimate two types of neutral rates, which hold over the business cycle and the financial cycle respectively. To account for uncertainty around estimates of r*, we derive confidence bands via a thick modelling approach. Our estimates share a few common features with existing published estimates. Consistent with prior research, a downward trend in r* is observed, although the trend becomes less obvious when uncertainty bands are factored in. Meanwhile, our findings offer novel perspectives on the neutral rate in the four countries examined. For individual countries, our estimates for the two types of r* do not always track each other, suggesting that central banks face trade-off between business versus financial cycle considerations when setting the policy rate. Across countries, we identify significant positive spillovers from the US to the three East Asia countries, as well as spillovers from China to Kora and Japan.

Keywords: China; Japan; Korea; neutral real rate; time series and frequency domain modeling; band spectrum regression; financial cycle (search for similar items in EconPapers)
JEL-codes: C54 E32 E42 E43 E58 (search for similar items in EconPapers)
Date: 2025-08
New Economics Papers: this item is included in nep-cba, nep-cna, nep-fdg, nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bis.org/publ/work1285.pdf Full PDF document (application/pdf)
https://www.bis.org/publ/work1285.htm (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:1285

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().