Estimation and assessment of measures of the natural rate of interest: Evidence from Latin American economies with inflation targeting

Erick Lahura and Marco Vega

No 2023-014, Working Papers from Banco Central de Reserva del Perú

Abstract: We estimate and assess two measures of the natural rate of interest (NRI) for two Latin American economies, Chile and Peru, where monetary policy is conducted under inflation targeting. The first NRI measure is obtained through the estimation of a time varying parameter vector autoregression model with stochastic volatility (TVP-VAR-SV) as in Lubik y Matthes (2015), which we denote TVP-NRI. The second NRI measure is based on a recent methodology proposed by Benati (2020) and Benati (2023), which exploits the relationship between the interest rate and money velocity (Benati-NRI). In order to assess these two measures of NRI, we propose a new and simple criterion based on the idea that NRI is not expected to react to shocks that have no long-run effect on real interest rate (i.e. transitory shocks). The results for Chile and Peru indicate that TVP-NRI measures are relatively superior.

Keywords: Natural rate of interest; monetary policy; TVP-VARSV; money velocity; permanent and transitory shocks; LATAM-5 (search for similar items in EconPapers)
JEL-codes: C11 C32 E52 (search for similar items in EconPapers)
Date: 2023-12
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bcrp.gob.pe/docs/Publicaciones/Documen ... trabajo-014-2023.pdf Application/pdf

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:rbp:wpaper:2023-014

Access Statistics for this paper

More papers in Working Papers from Banco Central de Reserva del Perú Contact information at EDIRC.
Bibliographic data for series maintained by Research Unit ().