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Determinants of the Natural Rate of Interest in Japan \ Approaches based on a DSGE model and OG model \

Author

Listed:
  • Nao Sudo

    (Bank of Japan)

  • Yosuke Okazaki

    (Bank of Japan)

  • Yasutaka Takizuka

    (Bank of Japan)

Abstract

Since it is not directly observable, the natural rate can only be inferred from various estimates based on different methodologies. We discuss the developments and determinants of the natural rate, and the impact of the demographic landscape on its outlook, using estimates derived from structural models by Okazaki and Sudo (2018), and Sudo and Takizuka (2018). Different estimates computed by these structural models, together with other models, suggest that it is likely that the natural rate in Japan has declined continuously since the 1990s, and has currently been around 0%. According to the structural models, the decline has been brought about mostly by changes in neutral technology, but the functioning of financial intermediation has also had an important effect, indicating that these factors will remain crucial to future developments as well. While population aging is predicted to depress the natural rate, it is not likely to depress the rate drastically.

Suggested Citation

  • Nao Sudo & Yosuke Okazaki & Yasutaka Takizuka, 2018. "Determinants of the Natural Rate of Interest in Japan \ Approaches based on a DSGE model and OG model \," Bank of Japan Research Laboratory Series 18-E-1, Bank of Japan.
    • Handle: RePEc:boj:bojlab:lab18e01
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    Citations

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    Cited by:

    1. Fructuoso Borrallo Egea & Pedro del Río López, 2021. "Estrategia de política monetaria e inflación en Japón," Occasional Papers 2116, Banco de España.
    2. Pierre L Siklos, 2022. "Monetary, fiscal and demographic interactions in Japan: impact and a comparative assessment," Working Papers halshs-03776217, HAL.
    3. Takuji Kawamoto & Jouchi Nakajima & Tomoaki Mikami, 2021. "Supplementary Paper Series for the "Assessment" (3): Inflation-Overshooting Commitment:An Analysis Using a Macroeconomic Model," Bank of Japan Working Paper Series 21-E-9, Bank of Japan.
    4. Fructuoso Borrallo Egea & Pedro del Río López, 2021. "Monetary policy strategy and inflation in Japan," Occasional Papers 2116, Banco de España.
    5. Kosuke Aoki & Ko Munakata & Nao Sudo, 2019. "Prolonged Low Interest Rates and Banking Stability," IMES Discussion Paper Series 19-E-21, Institute for Monetary and Economic Studies, Bank of Japan.
    6. Claudio Borio, 2021. "Navigating by r*: safe or hazardous?," BIS Working Papers 982, Bank for International Settlements.

    More about this item

    Keywords

    Natural rate of interest; DSGE model; OG model;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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