Neutral Real Interest Rates in Inflation Targeting Emerging and Developing Economies

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

The Return to Fiscal Rules

“…• For a typical EM, the calibration for the pre-pandemic scenario (respectively, mid-2000s scenario) assumes an initial level of debt of 50 percent (40 percent) of GDP, a real long-term trend growth of 3.5 percent (6 percent), and a long-term inflation rate of 4 percent (6 percent). 3 The equilibrium nominal interest rate is calibrated at 6.5 percent (11.5 percent) in line with Ruch (2021) and Alloza and others (2021).…”

Problems of estimating the neutral interest rate: conclusions for Ukraine

“…Consumption-smoothing models reflect the relationship between supply and demand for loans to households and their willingness to consume over a lifetime (Ruch, 2021). Giammarioli and Valla (2004) argue that such methods are appropriate for large endogenous economies because they ignore the role of money, prices and potential GDP.…”

“…In the latest world practice, research is being conducted on ways to estimate the level of neutral interest rates in a small open economy, which would take into account the impact of factors of domestic demand and domestic savings (Ruch, 2021;Hledik & Vlcek, 2018;Stefanski, 2018). Ruch (2021), based on model specification in the sample of 30 countries with developing and emerging markets, found that statistically significant factors in the fall of the neutral real interest rate in these countries include a decrease in the growth rates of potential GDP, an increase in life expectancy (increasing savings) and a decrease in the relative cost of capital among production factors.…”

Effect of the duration of membership in the GATT/WTO on economic growth volatility

“…See for example,Aguiar and Gopinath (2007);Almansour et al (2015);Barrot et al (2018); Dabla-Norris and Gündüz (2014);Ductor and Leiva-León (2022);Guillaumont (2009Guillaumont ( , 2010;Cariolle et al (2016);Koren and Tenreyro (2007);Naoussi and Tripier (2013);Raddatz (2007);Razin et al (2003);Ruch (2020) and WTO (2021).3 These crises include for example, the COVID-19 pandemic, the commodity price shocks and the food crisis.…”