 Korea’s neutral interest rate: Estimates, determinants, and monetary policy stanceKyu Ho Kang and Kyeongtak Do Journal of Asian Economics, 2024, vol. 92, issue C Abstract: A neutral interest rate is a key indicator of the monetary policy stance. This study estimates South Korea’s neutral interest rates and their determinants. Based on the results, we investigate the prior monetary policy patterns of the Bank of Korea (BOK) and evaluate its stance. We adopted a time-series model approach, with a Bayesian econometric strategy. We can summarize the empirical findings as follows. First, the neutral interest rate has continued to fall, and it tends to fall sharply during downturns, such as the global financial crisis and COVID-19 pandemic. Second, the fall over the past two decades is largely attributable to population aging and the neutral US interest rate. Meanwhile, the recent rebound in the neutral interest rate seems to be due to the increase in the net issuance of government bonds. Finally, the BOK responded substantially to aggregate demand shocks over recent decades. In particular, the BOK’s current monetary policy stance is contractionary because of its active response to inflation rather than real activity. Keywords: Monetary policy; Trend-cycle decomposition; Inflation; Population aging; Safe assets (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:92:y:2024:i:c:s1049007824000277 DOI: 10.1016/j.asieco.2024.101732 Access Statistics for this article Journal of Asian Economics is currently edited by C. Wiemer More articles in Journal of Asian Economics from Elsevier |
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