Organized by Other Institutions
Solikin M Juhro
Global Financial Crisis,
Comments on "A spectral perspective on natural interest rates in Asia-Pacific: changes and possible drivers"
The paper by Feng Zhu is a coherent and timely overview of the major policy concerns on the "new neutral" lower equilibrium real interest rates, also known as the natural or neutral interest rate, following a world of "new normal" lower trend growth after the Global Financial Crisis of 2008-09 (GFC). The paper utilises an empirical (statistical) approach to estimate equilibrium real interest rates in Asia-Pacific and their relationship to population characteristics, globalisation, financial variables, and the long-run components of real GDP growth. The paper provides a lucid overview of several competing theories behind the decline in equilibrium real interest rates and proposes a hypothetical question regarding the relevance of the arguments to Asia-Pacific economies. As has been discussed, the real interest rate is simply a benchmark for measuring the monetary policy stance. Therefore, to use monetary policy rules such as the Taylor rule (Taylor (1993)), a feasible estimate of the equilibrium of real interest rates is required. As there have been, hitherto, very few attempts to estimate and assess the equilibrium real interest rates of emerging economies, and even fewer for emerging Asia, the paper attempts to fill the gap by providing a number of simple estimates and in doing so to shed light on the evolution of equilibrium real interest rates in a number of Asia-Pacific economies.