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Interest Rate Volatility And Macroeconomic Dynamics: A Cross-Country Analysis

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Abstract

Employing relatively novel computational techniques, this paper examines the relation between real interest rate volatility and macroeconomic dynamics for a diverse panel of countries. Empirically, we find that interest rate volatility is quite high and persistent overall, with estimates exhibiting non-negligible heterogeneity across countries. Moreover, we highlight that volatility increases at higher interest rate levels, while it is negatively correlated with measures of macroeconomic performance such as output, consumption and investment. Our analysis demonstrates that the empirical facts can be generated by a DSGE model augmented with stochastic volatility shocks.

Suggested Citation

  • Michael Patrick Curran & Adnan Velic, 2017. "Interest Rate Volatility And Macroeconomic Dynamics: A Cross-Country Analysis," Villanova School of Business Department of Economics and Statistics Working Paper Series 35, Villanova School of Business Department of Economics and Statistics.
    • Handle: RePEc:vil:papers:35
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    File URL: http://repec.library.villanova.edu/workingpapers/VSBEcon35.pdf
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    Cited by:

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    2. Adnan Velic, 2017. "Current Account Imbalances, Real Exchange Rates, and Nominal Exchange Rate Variability," Trinity Economics Papers tep1417, Trinity College Dublin, Department of Economics, revised Oct 2021.

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    More about this item

    Keywords

    interest rates; stochastic volatility; persistence; macroeconomic dynamics; general equilibrium models;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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