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What can we tell about monetary policy synchronization and interdependence over the 2007-2009 global financial crisis?

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  • Mohamed El Hedi Arouri

    (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre, LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)

  • Duc Khuong Nguyen

    (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II)

  • Fredj Jawadi

    (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre, LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)

Abstract

We investigate the synchronization and nonlinear adjustment dynamics of short-term interest rates for France, the UK and the US using the bi-directional feedback measures proposed by Geweke (1982) and appropriate smooth transition error-correction models (STECM). We find strong evidence of continual increases in bilateral synchroni-zation of these rates from 2005 to 2009 as well as of their lead-lag causal interactions with a slight dominance of the US rate. Our results also indicate that short-term interest rates converge towards a common long-run equilibrium in a nonlinear manner and their time dynamics exhibit regime-switching behavior.

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Paper provided by HAL in its series Working Papers with number hal-00507826.

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Date of creation: 01 Aug 2010
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Handle: RePEc:hal:wpaper:hal-00507826

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