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Natural Interest Rate in Korea: A Multi-Model Approach in a Small Open Economy Context

Author

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  • Kyeongtak Do

    (Bank of Korea)

  • Juhyun Ahn

    (Bank of Korea)

  • Haeri Jung

    (Bank of Korea)

Abstract

This paper estimates Korea's long-run natural interest rate (NIR) using six models spanning semi-structural and time-series approaches within a small open economy framework. The NIR declined persistently from 2000 to 2020, followed by a modest post-pandemic increase, with recent estimates for 2024:Q2 ranging from −0.4 to 1.2 percent, although this shift remains uncertain given limited data. Estimates differ across methodologies by about 1 to 2 percentage points and exhibit substantial statistical uncertainty, implying that the NIR should be interpreted cautiously in policy assessment. The results further highlight a significant role of external factors in driving fluctuations in Korea's NIR.

Suggested Citation

  • Kyeongtak Do & Juhyun Ahn & Haeri Jung, 2026. "Natural Interest Rate in Korea: A Multi-Model Approach in a Small Open Economy Context," Asian Economic Papers, MIT Press, vol. 25(2), pages 129-152, Summer.
    • Handle: RePEc:tpr:asiaec:v:25:y:2026:i:2:p:129-152
    DOI: 10.1162/ASEP.a.994
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