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Mr. Wicksell and the global economy: What drives real interest rates?

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  • Michal Brzoza-Brzezina

    ()
    (National Bank of Poland and Warsaw School of Economics)

  • Jesus Crespo Cuaresma

    ()
    (Department of Economics, University of Vienna, Bruennerstrasse 72, A-1210 Vienna (Austria))

Abstract

We use a Bayesian dynamic latent factor model to extract world, regional and country factors of real interest rate series for 22 OECD economies. We find that the world factor plays a privileged role in explaining the variance of real rates for most countries in the sample, and accounts for the steady decrease in interest rates in the last decades. Moreover, the relative contribution of the world factor is rising over time. We also find relevant differences between the group of countries that follow fixed exchange rate strategies and those with flexible regimes.

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Bibliographic Info

Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 139.

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Length: 35
Date of creation: 29 Jan 2008
Date of revision:
Handle: RePEc:onb:oenbwp:139

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Keywords: Real interest rates; natural rate of interest; Bayesian dynamic factor models.;

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. MichaÅ? Brzoza-Brzezina
    by Metablog Obserwatora Finansowego in Obserwator Finansowy on 2009-12-10 11:59:58
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Cited by:
  1. Groth, Charlotta & Zampolli, Fabrizio, 2010. "Macroeconomic stability and the real interest rate: a cross-country analysis," Discussion Papers 30, Monetary Policy Committee Unit, Bank of England.
  2. Michal Brzoza-Brzezina & Jacek Kotlowski, 2009. "Estimating pure inflation in the Polish economy," Working Papers 37, Department of Applied Econometrics, Warsaw School of Economics.
  3. Natalie Labuschagne & Polly Vowles, 2010. "Why are Real Interest Rates in New Zealand so High? Evidence and Drivers," Treasury Working Paper Series 10/09, New Zealand Treasury.

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