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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

Suggested Citation

  • Rodrigo Fuentes & Fabián Gredig, 2007. "Estimating the Chilean Natural Rate of Interest," Working Papers Central Bank of Chile 448, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:448
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    References listed on IDEAS

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    1. César Calderón M. & Francisco Gallego Y., 2002. "La Tasa de Interés Real Neutral en Chile," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 5(2), pages 65-72.
    2. Garnier, Julien & Wilhelmsen, Björn-Roger, 2005. "The natural real interest rate and the output gap in the euro area: a joint estimation," Working Paper Series 546, European Central Bank.
    3. 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.
    4. 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.
    5. Daniel Leigh, 2005. "Estimating the Implicit Inflation Target; An Application to U.S. Monetary Policy," IMF Working Papers 05/77, International Monetary Fund.
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    Cited by:

    1. 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.
    2. Harding, Don & Negara, Siwage, 2008. "Estimating baseline real business cycle models of the Australian economy," MPRA Paper 33556, University Library of Munich, Germany.
    3. Donal McGettigan & Kenji Moriyama & Jean F Noah Ndela Ntsama & Francois Painchaud & Haonan Qu & Chad Steinberg, 2013. "Monetary Policy in Emerging Markets; Taming the Cycle," IMF Working Papers 13/96, International Monetary Fund.
    4. Goyal, Ashima & Arora, Sanchit, 2016. "Estimating the Indian natural interest rate: A semi-structural approach," Economic Modelling, Elsevier, vol. 58(C), pages 141-153.
    5. 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.
    6. J. Rodrigo Fuentes, 2008. "La tasa de interés real neutral: definiciones y videncia para economías latinoamericanas," Investigación Conjunta-Joint Research,in: Centro de Estudios Monetarios Latinoamericanos (CEMLA) (ed.), Estimación y Uso de Variables no Observables en la Región, edition 1, volume 1, chapter 5, pages 135-144 Centro de Estudios Monetarios Latinoamericanos, CEMLA.

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