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Emerging market economies and the world interest rate

Author

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  • Bahadir, Berrak
  • Lastrapes, William D.

Abstract

We use a Factor Augmented VAR model to estimate the dynamic responses of interest rates in emerging market economies to the ‘world’ interest rate, which we extract from a dynamic factor model of yields in industrialized countries. Our results provide evidence that many emerging market yields respond to world rate shocks, at least gradually, which is broadly consistent with capital market integration. Our findings also suggest that the world rate captures information about emerging market yields not contained in US rates, which are typically used to proxy for the world rate.

Suggested Citation

  • Bahadir, Berrak & Lastrapes, William D., 2015. "Emerging market economies and the world interest rate," Journal of International Money and Finance, Elsevier, vol. 58(C), pages 1-28.
    • Handle: RePEc:eee:jimfin:v:58:y:2015:i:c:p:1-28
    DOI: 10.1016/j.jimonfin.2015.08.001
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    References listed on IDEAS

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    2. Duygu Yolcu Karadam & Erdal Özmen, 2016. "Real Exchange Rates and Growth," ERC Working Papers 1609, ERC - Economic Research Center, Middle East Technical University, revised Sep 2016.
    3. Wei Sun & Kuhelika De, 2019. "Real Exchange Rate, Monetary Policy, And The U.S. Economy: Evidence From A Favar Model," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 552-568, January.
    4. Kuhelika De & Ryan A. Compton & Daniel C. Giedeman & Gary A. Hoover, 2019. "Macroeconomic Shocks and Racial Labour Market Differences in the U.S," CESifo Working Paper Series 8004, CESifo.
    5. De, Kuhelika & Sun, Wei, 2020. "Is the exchange rate a shock absorber or a source of shocks? Evidence from the U.S," Economic Modelling, Elsevier, vol. 89(C), pages 1-9.

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    More about this item

    Keywords

    FAVAR; Capital mobility; Principal components;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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