Estimating the natural rate of interest for the emerging Asia

Abstract

This paper evaluates the natural rate of interest (NRI) for Indonesia, Malaysia, Philippines, Singapore, South Korea, [Taipei, China], and Thailand and aggregates them using a GDP-weighted average. This paper discusses four key points. Firstly, to estimate the NRI in emerging Asian economies, this paper introduces a Time Varying Parameter Vector Autoregression (TVP-VAR) model that integrates exchange rates alongside conventional growth and inflation variables. Secondly, the results show that NRIs in the emerging Asia have been declining in trend since the 1990s. Thirdly, the behavior of the NRI for each economy is not uniform across crises—the Asian Financial Crisis, the Global Financial Crisis, and the COVID-19 pandemic. Fourthly, the findings reveal that the ascertained Asian NRI decreased to the vicinity of 0% during the COVID-19 pandemic period.