In short, Australians have found a source of finance unavailable domestically (at as reasonable a price), and non-residents have found an asset that suits their portfolio needs. Since there are no free lunches in financial markets, there is the question of the cost for Australian banks to cover these arrangements. One part of this cost is known as the basis.
Lewis and Vazquez-Grande (2017) examine parameter uncertainty and alternative specifications in the estimation of the natural rate of interest. Under some specifications, they find an estimated r* at the end of 2016 of close to 2 percent, far higher than the about 0.5 percent reported by the methodology of Holston, Laubach, and Williams (forthcoming). 3 See Holston, Laubach, and Williams (forthcoming).