On the Propagation Mechanism of International Real Interest Rate Spillovers: Evidence from More than 200 Years of Data

This paper analyzes the real interest rate transmission mechanism across the United States, Japan, France, Germany, Holland, Italy, Spain and the United Kingdom during a period of more than 200 years. Based on a time-varying parameter vector autoregressive (TVP-VAR) connectedness methodology, the empirical results suggest that the magnitude of these international spillovers ranges between 30 percent and 75 percent across the sample period. Furthermore, it is shown that international interest rate spillovers increase during crisis periods, such as the two World Wars, the Great Depression of 1929, the 1980 and 1990 recessions, and the Great Financial Crisis of 2009. More interestingly, our findings illustrate the position of each of these eight countries as net transmitters or receivers of monetary policy shocks over time. Our analysis contributes to the debate on whether the conduct of monetary policy in a country should consider its international spillovers.