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How are the key Finnish market interest rates determined?

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  • Christian C. Starck

    (Bank of Finland)

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    Abstract

    Finnish money markets have undergone profound changes in recent years. In particular, the transition to a more market oriented system has changed the way domestic interest rates are formed. This paper presents and quantifies one way of describing the structure and main linkages of the current setting. Key elements of the model are the dependence of the domestic market interest rates on the foreign interest rate, an explicit formulation of the dependence of the domestic short-term market interest rate on purely domestic factors, and explicit considerations of various institutional features of the domestic money market. Empirical evidence on the formation of the domestic short-term and long-term market interest rates as well as short-term and long-term lending rates is presented, and the results are broadly consistent with the theoretical structure of the model.

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    File URL: http://www.taloustieteellinenyhdistys.fi/images/stories/fep/fep19891_4.pdf
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    Bibliographic Info

    Article provided by Finnish Economic Association in its journal Finnish Economic Papers.

    Volume (Year): 2 (1989)
    Issue (Month): 1 (Spring)
    Pages: 39-47

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    Handle: RePEc:fep:journl:v:2:y:1989:i:1:p:39-47

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    Web page: http://www.taloustieteellinenyhdistys.fi
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    1. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
    2. Blanco, Herminio & Garber, Peter M, 1986. "Recurrent Devaluation and Speculative Attacks on the Mexican Peso," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 148-66, February.
    3. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
    4. Himarios, Daniel, 1987. "Devaluation, Devaluation Expectations and Price Dynamics," Economica, London School of Economics and Political Science, vol. 54(215), pages 299-313, August.
    5. Cumby, Robert E. & Van Wijnbergen, Sweder, 1989. "Financial policy and speculative runs with a crawling peg: Argentina 1979-1981," Journal of International Economics, Elsevier, vol. 27(1-2), pages 111-127, August.
    6. Sebastian Edwards & Mohsin S. Khan, 1985. "Interest Rate Determination in Developing Countries: A Conceptual Framework (Détermination du taux d'intérêt dans les pays en développement: cadre théorique) (Determinación de los ti," IMF Staff Papers, Palgrave Macmillan, vol. 32(3), pages 377-403, September.
    7. Gupta, Kanhaya L., 1988. "Interest rate determination in a small open economy : Singapore," Economics Letters, Elsevier, vol. 27(3), pages 283-285.
    8. Godfrey, Leslie G, 1978. "Testing for Higher Order Serial Correlation in Regression Equations When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1303-10, November.
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