Estimating the Chilean Natural Rate of Interest

Abstract

In this paper we use a set of methods to estimate the neutral interest rate for Chile (NRIR). We group the methods into three categories: methods derived from pure economic theory, the NRIR implicit in the price of financial assets, and the rate estimated from a statistical model using macroeconomic data. We learnt that the neutral interest rate is not a time invariant variable. It is closely related to the potential growth of the economy (but it is not equal to the growth rate of the trended output). The application of all methods yields very similar results. The NRIR would be in a range between 2% and 3.6%, with a median equal to 2.8% with data up to the fourth quarter of 2006

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