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Estimating the Chilean Natural Rate of Interest

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  • Rodrigo Fuentes
  • Fabián Gredig

Abstract

In this paper we use a set of methods to estimate the neutral interest rate for Chile (NRIR). We group the methods into three categories: methods derived from pure economic theory, the NRIR implicit in the price of financial assets, and the rate estimated from a statistical model using macroeconomic data. We learnt that the neutral interest rate is not a time invariant variable. It is closely related to the potential growth of the economy (but it is not equal to the growth rate of the trended output). The application of all methods yields very similar results. The NRIR would be in a range between 2% and 3.6%, with a median equal to 2.8% with data up to the fourth quarter of 2006

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 448.

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Date of creation: Dec 2007
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Handle: RePEc:chb:bcchwp:448

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  1. Daniel Leigh, 2005. "Estimating the Implicit Inflation Target," IMF Working Papers 05/77, International Monetary Fund.
  2. Julien Garnier & Bjørn-Roger Wilhelmsen, 2005. "The natural real interest rate and the output gap in the euro area: A joint estimation," Working Paper 2005/14, Norges Bank.
  3. Giammarioli, Nicola & Valla, Natacha, 2004. "The natural real interest rate and monetary policy: a review," Journal of Policy Modeling, Elsevier, vol. 26(5), pages 641-660, July.
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Cited by:
  1. repec:cml:incocp:1-05 is not listed on IDEAS
  2. Nicolas E. Magud & Evridiki Tsounta, 2012. "To Cut or Not to Cut? That is the (Central Bank’s) Question In Search of the Neutral Interest Rate in Latin America," IMF Working Papers 12/243, International Monetary Fund.
  3. Harding, Don & Negara, Siwage, 2008. "Estimating baseline real business cycle models of the Australian economy," MPRA Paper 33556, University Library of Munich, Germany.
  4. Donal McGettigan & Kenji Moriyama & Jean F Noah Ndela Ntsama & Francois Painchaud & Haonan Qu & Chad Steinberg, 2013. "Monetary Policy in Emerging Markets," IMF Working Papers 13/96, International Monetary Fund.
  5. Fabián Gredig, 2007. "Asymmetric Monetary Policy Rules and the Achievement of the Inflation Target: The Case of Chile," Working Papers Central Bank of Chile 451, Central Bank of Chile.

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