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Long-Term Real Interest Rates: Evidence on the Global Capital Market

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  • Breedon, Francis
  • Henry, Brian
  • Williams, Geoffrey

Abstract

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.

Suggested Citation

  • Breedon, Francis & Henry, Brian & Williams, Geoffrey, 1999. "Long-Term Real Interest Rates: Evidence on the Global Capital Market," Oxford Review of Economic Policy, Oxford University Press, vol. 15(2), pages 128-142, Summer.
  • Handle: RePEc:oup:oxford:v:15:y:1999:i:2:p:128-42
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    Cited by:

    1. Stefano Schiavo, 2005. "Euro bonds: in search of financial spillovers," Sciences Po publications 2, Sciences Po.
    2. Bruno Ducoudré, 2005. "Fiscal policy and interest rates," Documents de Travail de l'OFCE 2005-08, Observatoire Francais des Conjonctures Economiques (OFCE).
    3. Abhisek Banerjee & Manmohan Singh, 2006. "Testing Real Interest Parity in Emerging Markets," IMF Working Papers 06/249, International Monetary Fund.
    4. Caporale, Guglielmo Maria & Girardi, Alessandro, 2013. "Fiscal spillovers in the Euro area," Journal of International Money and Finance, Elsevier, vol. 38(C), pages 84.1-84.16.
    5. Harm Bandholz & Jorg Clostermann & Franz Seitz, 2009. "Explaining the US bond yield conundrum," Applied Financial Economics, Taylor & Francis Journals, vol. 19(7), pages 539-550.
    6. Brigitte Desroches & Michael Francis, 2010. "World real interest rates: a global savings and investment perspective," Applied Economics, Taylor & Francis Journals, vol. 42(22), pages 2801-2816.
    7. Byrne, Joseph P. & Fazio, Giorgio & Fiess, Norbert, 2012. "Interest rate co-movements, global factors and the long end of the term spread," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 183-192.
    8. Christian Upper & Andreas Worms, 2003. "Real long-term interest rates and monetary policy: a cross-country perspective," BIS Papers chapters,in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 234-257 Bank for International Settlements.
    9. Alex Luiz FERREIRA, "undated". "Are Real Interest Differentials Caused by Frictions in Goods or Assets Markets, Real or Nominal Shocks?," EcoMod2004 330600051, EcoMod.
    10. Chinn, Menzie & Frankel, Jeffrey A., 2003. "The Euro Area and World Interest Rates," Santa Cruz Center for International Economics, Working Paper Series qt9823140f, Center for International Economics, UC Santa Cruz.
    11. Steven B. Kamin, 2010. "Financial globalization and monetary policy," International Finance Discussion Papers 1002, Board of Governors of the Federal Reserve System (U.S.).
    12. Jérôme Creel & Bruno Ducoudré & Catherine Mathieu & Henri Sterdyniak, 2005. "Doit-on oublier la politique budgétaire ?. Une analyse critique de la nouvelle théorie anti-keynésienne des finances publiques," Revue de l'OFCE, Presses de Sciences-Po, vol. 92(1), pages 43-97.
    13. Caporale, Guglielmo Maria & Williams, Geoffrey, 2002. "Long-term nominal interest rates and domestic fundamentals," Review of Financial Economics, Elsevier, vol. 11(2), pages 119-130.
    14. Peter Claeys & Rosina Moreno & Jordi Suriñach, 2008. "Fiscal policy and interest rates: the role of financial and economic integration," IREA Working Papers 200810, University of Barcelona, Research Institute of Applied Economics, revised Sep 2008.
    15. repec:spo:wpecon:info:hdl:2441/1769 is not listed on IDEAS
    16. Claeys, Peter & Moreno, Rosina & Suriñach, Jordi, 2012. "Debt, interest rates, and integration of financial markets," Economic Modelling, Elsevier, vol. 29(1), pages 48-59.
    17. Tamim Bayoumi & Andrew Swiston, 2010. "The Ties that Bind: Measuring International Bond Spillovers Using Inflation-Indexed Bond Yields," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 366-406, June.
    18. Bonatti, Luigi & Cristini, Annalisa, 2008. "Breaking the Stability Pact: Was it predictable?," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 793-810.
    19. Bruno Ducoudre, 2008. "Structure par terme des taux d’intérêt et anticipations de la politique économique," Sciences Po publications info:hdl:2441/5221, Sciences Po.

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