The Natural Rate of Interest in Asia

ABSTRACT This study represents a pioneering endeavour to estimate the natural rate of interest (NRI) for a group of emerging Asian economies most directly affected by the Asian Financial Crisis (AFC). Our findings reveal a decline in the NRI in Asia over the past few decades. It was observed that the real NRI in Asia plummeted following the AFC but increased after the Global Financial Crisis (GFC) albeit temporarily, which suggests that the impact of the AFC on the NRI may have been larger than that of the GFC. Furthermore, while a certain degree of interdependence was identified between the NRI in Asia and that in the United States, minimal comovement was observed with that in China. This observation implies that the decline in the NRI in Asia can be attributed to region‐specific factors.