Recent Developments in Measuring the Natural Rate of Interest

Shogo Nakano, Yu Sugioka and Hiroki Yamamoto
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Shogo Nakano: Bank of Japan
Yu Sugioka: Bank of Japan
Hiroki Yamamoto: Bank of Japan

No 24-E-12, Bank of Japan Working Paper Series from Bank of Japan

Abstract: The natural rate of interest (r*) is the real interest rate that is neutral to the economy and prices, and is one of the benchmarks for evaluating the stance of monetary policy. r* cannot be observed directly and must be estimated based on some assumptions. In this paper, we survey various methods that have been developed for estimating r*, summarize their characteristics, and apply them to the Japanese economy. We confirm all estimates of r* showed a downward trend in the long run. However, the estimated results of r* vary widely, depending on the method used, and current estimates can alter when new data are added to the estimation. Therefore, it is necessary to consider estimation uncertainties when conducting monetary policy.

Keywords: Natural rate of interest; Equilibrium real interest rate; Equilibrium yield curve; Term-structure (search for similar items in EconPapers)
JEL-codes: C32 E43 E52 (search for similar items in EconPapers)
Date: 2024-10-11
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:boj:bojwps:wp24e12

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