The concept of the natural or equilibrium rate of interest has attracted a lot of attention from monetary policymakers in recent years. Most attempts to estimate the natural rate use a closed economy framework. We argue that in the face of greater integration of global product and capital markets, an open economy framework is more appropriate. We provide some initial estimates of the natural rate for the United States and Japan in a two-country framework. Our identifying assumptions include a close relationship between the time-varying natural rate of interest and the low-frequency fluctuations of potential output growth in both the home country and the foreign country. Our results suggest that the natural rates in both countries are mainly determined by their own trend growth rates of potential output. Nevertheless, the other country's trend growth plays an important role in several specific periods. The gap between the actual real interest rate and our estimated natural rate offers valuable insights into the recent stance of monetary policy in both of these two countries.
This paper analyses the stochastic dynamics of the COVID-19 Case-Fatality Ratios (CFR) in three developing economies in East Asia: Indonesia, Malaysia, and the Philippines. The sample covers the daily frequency data from April 28, 2020, to June 29, 2021. For this purpose, we utilize two unit root tests, which consider one structural break and two structural breaks. The findings reveal that the CFR follows a unit root process in Indonesia and the Philippines. However, the CFR is stationary in Malaysia. This evidence indicates that the COVID-19 has a permanent effect in Indonesia and the Philippines but temporary in Malaysia. The paper also discusses the potential economic implications of these results for the post-COVID-19 era in the related developing economies.
The concept of the natural or equilibrium rate of interest has attracted a lot of attention from monetary policymakers in recent years. Most attempts to estimate the natural rate use a closed economy framework. We argue that in the face of greater integration of global product and capital markets, an open economy framework is more appropriate. We provide some initial estimates of the natural rate for the United States and Japan in a two-country framework. Our identifying assumptions include a close relationship between the time-varying natural rate of interest and the low-frequency fluctuations of potential output growth in both the home country and the foreign country. Our results suggest that the natural rates in both countries are mainly determined by their own trend growth rates of potential output. Nevertheless, the other country's trend growth plays an important role in several specific periods. The gap between the actual real interest rate and our estimated natural rate offers valuable insights into the recent stance of monetary policy in both of these two countries.
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