Long-Term Real Interest Rates: Evidence on the Global Capital Market
The steady removal of capital controls, and the consequent increase in international capital flows has led to a growing belief that there is now one global capital market with a single world real interest rate at its core. We review the evidence on international real interest rate behaviour using alternative measures of real interest rates, including those obtained from the growing set of inflation-adjusted government bonds. Using a range of statistical tests we find that it is hard to argue that real interest rates are converging to single world rate--though international factors are important. Moreover, the large and persistent differences in real interest rates across countries cannot be explained in terms of real exchange-rate expectations. Macroeconomic indicators from the countries concerned appear to play some role in accounting for these differences. Copyright 1999 by Oxford University Press.
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