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Globalization and Its Growing Impact on the Natural Rates of Interest in Developed Economies

日本語

November 1, 2024
Yudai Hatayama*1
Yuto Iwasaki*2
Kyoko Nakagami*3
Tatsuyoshi Okimoto*4

Abstract

This paper quantitatively examines the effect of globalization on the natural rate of interest in developed economies, including Japan, the US, and the euro area. By incorporating into the model the variables that capture global economic and financial trends, such as demand and supply of safe assets and cross-border spillovers, with a smooth-transition framework, we account for the existence of non-linear regime change of their coefficients, driven by globalization. Our findings indicate that along with the progress of globalization, (i) the impact of global factors rapidly increased around 2000, and (ii) the commonly observed decline in the natural rate of interest can be largely attributed to these global factors. These findings underscore the importance of incorporating global factors such as demand and supply of safe assets and global spillovers, with their increasing impact, alongside the domestic factors such as productivity and demographics, when investigating developments in the natural rate of interest.

JEL classification
E43, E52, F41

Keywords
Natural Rate of Interest, Globalization, Smooth Transition Model.

In writing this paper, we received valuable comments from Wataru Hirata, Sohei Kaihatsu, Kazushige Kamiyama, Yuji Maruo, Mitsuhiro Osada, Kotaro Suita, Yoichi Ueno, and BOJ staff members. However, any errors remaining in this paper are those of the authors themselves. Additionally, the views expressed herein are those of the authors and do not necessarily reflect the official views of the Bank of Japan.

  1. *1International Department
    E-mail : yuudai.hatayama@boj.or.jp
  2. *2Previously in International Department
  3. *3International Department
    E-mail : kyouko.nakagami@boj.or.jp
  4. *4Keio University and International Department
    E-mail : tatsuyoshi.okimoto@keio.jp

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