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Study estimates Korea's natural interest rate, suggesting external factors significantly influence fluctuations.
This paper estimates Korea's long-run natural interest rate (NIR) using six models spanning semi-structural and time-series approaches within a small open economy framework. The NIR declined persistently from 2000 to 2020, followed by a modest post-pandemic increase, with recent estimates for 2024:Q2 ranging from −0.4 to 1.2 percent, although this shift remains uncertain given limited data. Estimates differ across methodologies by about 1 to 2 percentage points and exhibit substantial statistical uncertainty, implying that the NIR should be interpreted cautiously in policy assessment. The results further highlight a significant role of external factors in driving fluctuations in Korea's NIR.
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Do et al. (2026) studied this question.
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