Sources of Variation in International Real Interest Rates
AbstractThis paper analyses the effects of inflation on ex-post real interest rates in an international framework. A dynamic factor model is estimated in which real interest rates are influenced by real interest and inflation factors that are common to all the countries, and by country- specific factors. We find that the source of domestic inflation is an important determinant of the effect of inflation on real interest rates. A common inflation factor has a negative effect on ex-post real interest rates lending support to a form of the Mundell-Tobin effect in international real interest rates, and that a country-specific inflation factor tends to have a positive effect.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 923.
Length: 35 pages
Date of creation: Mar 1995
Date of revision:
real interest rates; world components; Kalman filter; scoring;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
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