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Recent Developments in Measuring the Natural Rate of Interest

日本語

October 11, 2024
Shogo Nakano*1
Yu Sugioka*2
Hiroki Yamamoto*3

Abstract

The natural rate of interest (r*) is the real interest rate that is neutral to the economy and prices, and is one of the benchmarks for evaluating the stance of monetary policy. r* cannot be observed directly and must be estimated based on some assumptions. In this paper, we survey various methods that have been developed for estimating r*, summarize their characteristics, and apply them to the Japanese economy. We confirm all estimates of r* showed a downward trend in the long run. However, the estimated results of r* vary widely, depending on the method used, and current estimates can alter when new data are added to the estimation. Therefore, it is necessary to consider estimation uncertainties when conducting monetary policy.

JEL classification
C32, E43, E52

Keywords
Natural rate of interest, Equilibrium real interest rate, Equilibrium yield curve, Term-structure

The authors are grateful to Masatoshi Ando, Yuichiro Ito, Mitsuhiro Osada, Sohei Kaihatsu, Junko Koeda, Keiichiro Kobayashi, Takatoshi Sasaki, Jouchi Nakajima, Teppei Nagano, Koji Nakamura, Yudai Hatayama, Ichiro Fukunaga, participants of the first workshop on the "Review of Monetary Policy from a Broad Perspective" entitled "The Effects and Side Effects of Unconventional Monetary Policy," participants of 31th SNDE Annual Symposium, and the staff at the Bank of Japan. Any remaining errors are the authors' own. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of Japan.

  1. *1Monetary Affairs Department, Bank of Japan
    E-mail : shougo.nakano@boj.or.jp
  2. *2Monetary Affairs Department (currently Personnel and Corporate Affairs Department), Bank of Japan
    E-mail : yuu.sugioka@boj.or.jp
  3. *3Monetary Affairs Department (currently International Department), Bank of Japan
    E-mail : hiroki.yamamoto@boj.or.jp

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