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Real interest rates linkages between the USA and the UK in the postwar period

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  • Angelos Kanas

    (Department of Economics, University of Crete, and Regional Analysis Division, FORTH, Greece)

  • Georgios Tsiotas

    (Department of Economics, University of Crete, and Regional Analysis Division, FORTH, Greece)

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    Abstract

    This paper addresses the issue of real interest rate linkages between the UK and the USA during the postwar period. We use a bivariate Markov switching vector error correction model, which accounts for both the regime switches in the real interest rates and their long-run cointegration properties over that period. We find strong evidence of two volatility regimes, namely a high-volatility and a low-volatility regime, jointly characterizing the US and the UK real interest rates. Evidence is found of high-volatility regime dependence between the two real interest rates. In addition, there is evidence of regime-dependent Granger causality: the US real interest rate Granger causes the UK only in the regime of high volatility. Copyright © 2005 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/ijfe.271
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

    Volume (Year): 10 (2005)
    Issue (Month): 3 ()
    Pages: 251-262

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    Handle: RePEc:ijf:ijfiec:v:10:y:2005:i:3:p:251-262

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    Web page: http://www.interscience.wiley.com/jpages/1076-9307/

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    Cited by:
    1. Holmes, Mark J. & Maghrebi, Nabil, 2008. "Is there a connection between monetary unification and real economic integration? Evidence from regime-switching stationarity tests," Journal of International Money and Finance, Elsevier, vol. 27(6), pages 958-970, October.

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