The International Linkage of Real Interest Rates : the European-US Condition PDF Download

Author: Robert E. Cumby
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Author: Robert E. Cumby
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 44

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Casual observation indicates that in recent years real interest rates in the United States appear to have risen sharply and have remained high relative to historical standards. Many observers have claimed that these high real rates have been transmitted abroad and have lead to high real rates in the rest of the industrialized countries. Concern over the level of real rates has been widespread in the analyses by economic policymakers both in Europe and in the United States. In this paper we present evidence on several questions regarding the movement in short term real interest rates in eight countries that have been raised by the recent policy debates in Europe and the United States: Have ex ante real rates in the United States and Europe been high during recent years? Has there been a link between U.S. real rates and those in other countries? Can this link be quantified?The basic finding in this paper is that real rates have climbed dramatically from the 1970s to the 1980s in both the European countries and the United States. Indeed, real interest rates in the United States are currently at high levels unprecedented in the post war period, which rival the levels that occurred during the Great Depression. Complaints that real interest rates in the United States are exceedingly high seem to be well justified. There is also strong evidence that there is a positive association between movements in U.S. real rates and those in Europe. However,European real rates typically do not move one-for-one with U.S. real rates,still leaving open the possibility that European monetary policy can influence domestic economic activity.

Author: Frederic S. Mishkin
Publisher:
ISBN:
Category :
Languages : en
Pages : 19

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Casual observation indicates that in recent years real interest rates in the United States appear to have risen sharply and have remained high relative to historical standards. Many observers have claimed that these high real rates have been transmitted abroad and have lead to high real rates in the rest of the industrialized countries. Concern over the level of real rates has been widespread in the analyses by economic policymakers both in Europe and in the United States. In this paper we present evidence on several questions regarding the movement in short term real interest rates in eight countries that have been raised by the recent policy debates in Europe and the United States: Have ex ante real rates in the United States and Europe been high during recent years? Has there been a link between U.S. real rates and those in other countries? Can this link be quantified?The basic finding in this paper is that real rates have climbed dramatically from the 1970s to the 1980s in both the European countries and the United States. Indeed, real interest rates in the United States are currently at high levels unprecedented in the post war period, which rival the levels that occurred during the Great Depression. Complaints that real interest rates in the United States are exceedingly high seem to be well justified. There is also strong evidence that there is a positive association between movements in U.S. real rates and those in Europe. However, European real rates typically do not move one-for-one with U.S. real rates, still leaving open the possibility that European monetary policy can influence domestic economic activity

Author: Mbodja Mougoue
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Whereas previous studies have focused on the causal relation between nominal interest rates, this paper examines causal relationships between real rates for the United States and six other countries. Based on evidence from our full sample, we find that U.S. and foreign interest rates are not highly informative for one another. This would suggest that even if the United States is regarded as a large player in international financial markets, this does not necessarily translate into the transmission of U.S. real interest rates to other countries. However, an examination of various sub- periods of our sample reveals that this conclusion may be sensitive to the U.S. monetary policy regime. We also report results for linkages between European countries which indicate that Germany provides some information on real interest rates in France and the United Kingdom but not in Italy. An analysis of various sub-periods for the European countries show that the result for France is not robust, with German rates having an impact only in the first period through March 1983. This latter evidence does not provide strong support for the hypothesis that Germany's monetary policy plays a dominant role in the European Monetary System. In general, we would argue that domestic factors play a prominent role in determining real interest rates, quite independently from the influence of interest rates from abroad.

Author: Kiyotaka Sato
Publisher:
ISBN:
Category : Capital market
Languages : en
Pages : 58

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Author: Philip Inyeob Ji
Publisher:
ISBN: 9780733421990
Category : Cointegration
Languages : en
Pages : 29

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Author: Mehdi S. Monadjemi
Publisher:
ISBN:
Category : Interest rates
Languages : en
Pages : 36

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Author: Ms.Jahanara Zaman
Publisher: International Monetary Fund
ISBN: 1451859007
Category : Business & Economics
Languages : en
Pages : 44

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This paper examines the extent to which a dynamic international general equilibrium model can account for observed movements in real interest rates and interest rate differentials. Using data for Group of Seven, the study finds that measured real interest rates are countercyclical in a single country and that the contemporaneous cross-correlations between international real interest differentials and output growth spreads are negative. Predictions of the baseline model are, however, inconsistent with the data. Extending the benchmark model to include habit persistence in consumption improves the match between theory and data.

Author: Robert Cumby
Publisher:
ISBN:
Category : Foreign exchange
Languages : en
Pages : 38

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"In an open economy, the scope for activist stabilization policy depends on the nature of the linkages between domestic and international markets for goods and assets. Two important relationships--purchasing power parity and uncovered interest-rate parity--have received extensive empirical attention in recent years and are fundamental building blocks of several empirical ex- change rate models. This paper reviews and extends recent econometric findings on these two classical parity relationships and on their corollary, the international equality of expected real interest rates. Econometric tests assuming rationality of expectations are on the whole unfavorable to the classical parity relationships: with few exceptions, they are strongly rejected. A central theme in the review of empirical work is the conditional heteroskedasticity of inflation and exchange rate forecast errors and the bias this statistical problem may impart to tests of inter- national parity relationships. The paper proposes and implements a test for conditional heteroskedasticity which in many cases produces strong evidence that the problem is indeed important"--NBER website.

Author: Mitsuhiro Fukao
Publisher:
ISBN:
Category : Bonds
Languages : en
Pages : 110

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