 A post-pandemic new normal for interest rates in emerging bond markets? Evidence from ChileLuis Ceballos, Jens H.E. Christensen and Damian Romero Journal of International Money and Finance, 2025, vol. 150, issue C Abstract: Before the COVID-19 pandemic, researchers intensely debated the extent of the decline in the so-called equilibrium or natural rate of interest. Given the recent sharp increase in interest rates, we revisit this question in an emerging bond market context and offer a Chilean perspective using a dynamic term structure finance model estimated directly on the prices of individual Chilean inflation-indexed bonds with adjustments for bond-specific liquidity risk and real term premia. Beyond documenting the existence of large and time-varying liquidity risk premia in the bond prices, we estimate that the equilibrium real rate in Chile fell about 2 and a half percentage points in the 2003-2022 period and has remained low since then with model projections only suggesting a gradual reversal in coming years. Instead, recent increases in real interest rates in Chile are driven by spikes in the liquidity and term premia of inflation-indexed bond prices. Keywords: Affine arbitrage-free term structure model; Financial market frictions; Monetary policy; Rstar (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:jimfin:v:150:y:2025:i:c:s0261560624002213 DOI: 10.1016/j.jimonfin.2024.103234 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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