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A Spectral Perspective on Natural Interest Rates in Asia-Pacific

2016
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Book Synopsis A Spectral Perspective on Natural Interest Rates in Asia-Pacific by : Feng Zhu

Download or read book A Spectral Perspective on Natural Interest Rates in Asia-Pacific written by Feng Zhu. This book was released on 2016. Available in PDF, EPUB and Kindle. Book excerpt: I study the evolution of the equilibrium real interest rate, also known as the natural or neutral interest rate, in Asia-Pacific. Simple estimates based on a statistical approach suggest that, except for China, and Thailand since 2005, the natural interest rate may have declined substantially in Asia-Pacific economies since the early or mid-1990s, by over 4 percentage points on average. In many economies the rate has turned negative. The tendency has become more accentuated in the 2000s, especially following the onset of the Global Financial Crisis. The natural interest rate appears to vary significantly over time and across economies. Nevertheless, simple natural interest rate estimates are unreliable, and large uncertainties and sizeable heterogeneity in the estimates of the equilibrium real interest rate call for caution as well as monetary policy rules which are robust to such uncertainties. I use frequency-domain techniques to examine the relationship between the long-run component of real interest rate and those of population characteristics, globalisation, and a range of macroeconomic and financial variables (eg credit and asset prices). I estimate spectral and cospectral densities, coherency and the frequency-specific coefficients of correlation and regression proposed by Zhu (2005). The association seems to be broad and strong between the natural interest rate and the low-frequency trend components of demographic and global factors in AsiaPacific, but weak between the natural interest rate and trends in asset prices, creditto-GDP ratio and trend growth in many economies in the region. In most cases, the natural interest rate seems to be correlated with broad measures of long-term financial sector development, and trends in savings rate and investment ratio. Understanding the underlying factors driving changes in each economy's natural interest rate is important for the correct calibration and implementation of monetary policy.Full Publication: 'http://ssrn.com/abstract=2861007' Expanding the Boundaries of Monetary Policy in Asia and the Pacific.

Comments On 'A Spectral Perspective on Natural Interest Rates in Asia-Pacific

2016
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Book Synopsis Comments On 'A Spectral Perspective on Natural Interest Rates in Asia-Pacific by : Solikin M. Juhro

Download or read book Comments On 'A Spectral Perspective on Natural Interest Rates in Asia-Pacific written by Solikin M. Juhro. This book was released on 2016. Available in PDF, EPUB and Kindle. Book excerpt: Feng Zhu (2015) has delivered sound research on the equilibrium real interest rate and its implication for monetary policy in Asia-Pacific countries. I fully concur that the use of the natural interest rate framework to implement monetary policy poses many risks, given the numerous uncertainties surrounding natural rates. However, we should not only consider the precision of estimation but we should also seek to understand how different factors in different situations influence the equilibrium real interest rate and why this is important for monetary policy formulation. Here, I see some room for enhancement that should be incorporated in the paper. My suggestion is that the paper could discuss a broader scope of the monetary policy domain, especially in the post-GFC era, such as the trade-off between internal-external balances, the role of the exchange rate as well as risk perception/behaviour that could potentially impact the equilibrium real interest rate lift-off, as in the case of Indonesia, Malaysia, and some other emerging countries. This would provide a more rigorous assessment of the strategic role of interest rate policy and thus the practical relevance of equilibrium real interest rates in monetary policy formulation.Given the practical usefulness of equilibrium real interest rates, I generally support the arguments proffered by Orphanides and Williams (2002) that recommend against relying excessively on these intrinsically noisy indicators when making monetary policy decisions, and Hamilton et al (2015) who inject more inertia into the monetary policy reaction function. To conclude the discussion on this issue and anchor the theme of the conference, namely “expanding the boundaries of monetary policy”, we should put a proper weight on interest rate policy along with other instruments under a credible central bank policy mix strategy. This implies that the equilibrium real interest rate estimation should not statistically stand alone, since the determination of equilibrium real interest rates should be consistent with the macroeconomic balance and the related policy mix response. Consequently, while there is no guarantee that structural estimates would fare better, I would prefer to address the issue using a structural approach.

Understanding the Changing Equilibrium Real Interest Rates in Asia-Pacific

2016 Interest rates
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Release : 2016
Genre : Interest rates
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Book Synopsis Understanding the Changing Equilibrium Real Interest Rates in Asia-Pacific by : Feng Zhu

Download or read book Understanding the Changing Equilibrium Real Interest Rates in Asia-Pacific written by Feng Zhu. This book was released on 2016. Available in PDF, EPUB and Kindle. Book excerpt: "This paper studies the evolution of the equilibrium real interest rate (ie natural or neutral interest rate) in Asia-Pacific. The author takes an empirical approach to estimate the rate, simple estimates suggest that except for China, and Thailand since 2005, the natural interest rate may have declined substantially in Asian-Pacific economies since the early or mid-1990s, by over 4 percentage points on average. In many economies the rate has turned negative. The tendency has become more accentuated in the 2000s, especially since the onset of the global financial crisis. Yet simple natural interest rate estimates are unreliable, which vary significantly over time and across the economies."--Abstract.

Expanding the Boundaries of Monetary Policy in Asia and the Pacific

2016
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Release : 2016
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Book Synopsis Expanding the Boundaries of Monetary Policy in Asia and the Pacific by : Bank for International Settlements

Download or read book Expanding the Boundaries of Monetary Policy in Asia and the Pacific written by Bank for International Settlements. This book was released on 2016. Available in PDF, EPUB and Kindle. Book excerpt: Bank Indonesia and the Bank for International Settlements (BIS) co-hosted a research conference on "Expanding the boundaries of monetary policy in Asia and the Pacific" on 20-21 August 2015 in Jakarta. The event was the wrap-up conference of a research programme of the BIS Representative Office for Asia and the Pacific that had been approved by the Asian Consultative Council of central bank Governors in February 2014.The topic was motivated by the increased importance of financial stability in the conduct of monetary policy and the expanding set of monetary policy tools being employed. Within this overall theme, the following issues for the Asia-Pacific region were identified: (i) monetary policy objectives and strategies; (ii) instruments to manage monetary conditions; (iii) the assessment of monetary conditions; and (iv) transmission mechanisms.The conference brought together senior officials and researchers from central banks, international organisations and academia. This volume is a collection of the speeches, papers and prepared discussant remarks from the conference. This foreword summarises the contents of the conference and provides a synopsis of the discussions for time-constrained readers.While the full publication can be downloaded using the above link, individual contributions are available separately:'http://ssrn.com/abstract=2860988' Foreword to: Expanding the Boundaries of Monetary Policy in Asia and the Pacific'http://ssrn.com/abstract=2861281' The Challenges of Expanding the Boundaries of Monetary Policy'http://ssrn.com/abstract=2861309' Measuring the Effects of Monetary Policy on House Prices and the Economy'http://ssrn.com/abstract=2861329' Maintaining Price and Financial Stability by Monetary and Macroprudential Policy - Evidence from Asia and the Pacific'http://ssrn.com/abstract=2861330' A Comparison of Liquidity Management Tools in Seven Asian Economies'http://ssrn.com/abstract=2861331' A Spectral Perspective on Natural Interest Rates in Asia-Pacific: Changes and Possible Drivers'http://ssrn.com/abstract=2861312' Managing Monetary and Financial Stability in a Dynamic Global Environment: Bank Indonesia's Policy Perspectives'http://ssrn.com/abstract=2861491' Monetary Independence in a Financially Integrated World: What Do Measures of Interest Rate Co-Movement Tell Us?'http://ssrn.com/abstract=2861493' Financial Globalisation and Monetary Independence.

International Banking and Financial Market Developments

2016 Banks and banking, International
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Release : 2016
Genre : Banks and banking, International
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Download or read book International Banking and Financial Market Developments written by . This book was released on 2016. Available in PDF, EPUB and Kindle. Book excerpt:

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