Measuring the natural rate of real interest for the Chinese economy

In this paper, we deliver several measures of the natural rate of real interest for the Chinese economy using the quarterly data covering the period of 1990q1-2018q4, and assess their reliabilities as the indicators of Chinese monetary policy implementation. First, we employ the simple univariate methods including the historical average level and filtering techniques to quantify the natural real rate. Second, a VAR/VECM model based on Taylor rule is built up to calculate the natural real rate. Third, we quantify the natural real rate by a New Keynesian system as a robustness check. Finally, we evaluate all the estimates. The results suggest that the natural real rate varies over time with a countercyclical pattern, and the estimate in terms of the Taylor rule is the most efficient for indicating the stance of monetary policy in China. Our study provides new insights to investigate the monetary policy operation in China.