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

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Author Info
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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Publisher 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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