A Simple Method for Estimating Multiple Natural Rates Simultaneously: Estimation of Japan's Potential Output and Natural Foreign Exchange Rate

Koichiro Kamada
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Koichiro Kamada: Faculty of Business and Commerce, Keio University

No DP2026-005, Keio-IES Discussion Paper Series from Institute for Economics Studies, Keio University

Abstract: We propose a simple method for estimating multiple natural rates in a system of simultaneous equations. Our estimators of natural rates are closely related to the HP filter and accessible by many practitioners. As an application, Japan’s potential output and natural foreign exchange rate are estimated. It is shown that Japan’s potential output has been growing, but the natural foreign exchange rate has experienced stepwise downward shifts since the beginning of the 21st century. While Japan suffered the long-lasting stagnation, emerging markets, particularly China, achieved tremendous economic growth. The declines in the natural foreign exchange rate indicate Japan’s lost competitiveness in the world economy clearly.

Keywords: Phillips curve; net export; potential output; output gap; exchange rate; productivity; international competitiveness; HP filter (search for similar items in EconPapers)
JEL-codes: C13 C32 E31 E32 F14 F41 O47 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2026-03-18
New Economics Papers: this item is included in nep-ifn and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:keo:dpaper:dp2026-005

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