Determinants of the Natural Rate of Interest in Japan \ Approaches based on a DSGE model and OG model \

Nao Sudo, Yosuke Okazaki and Yasutaka Takizuka
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Yosuke Okazaki: Bank of Japan
Yasutaka Takizuka: Bank of Japan

No 18-E-1, Bank of Japan Research Laboratory Series from Bank of Japan

Abstract: Since it is not directly observable, the natural rate can only be inferred from various estimates based on different methodologies. We discuss the developments and determinants of the natural rate, and the impact of the demographic landscape on its outlook, using estimates derived from structural models by Okazaki and Sudo (2018), and Sudo and Takizuka (2018). Different estimates computed by these structural models, together with other models, suggest that it is likely that the natural rate in Japan has declined continuously since the 1990s, and has currently been around 0%. According to the structural models, the decline has been brought about mostly by changes in neutral technology, but the functioning of financial intermediation has also had an important effect, indicating that these factors will remain crucial to future developments as well. While population aging is predicted to depress the natural rate, it is not likely to depress the rate drastically.

Keywords: Natural rate of interest; DSGE model; OG model (search for similar items in EconPapers)
JEL-codes: E20 E32 E43 E44 E52 J11 (search for similar items in EconPapers)
Date: 2018-06-13
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (6)

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