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

Author

Listed:
  • 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 and Oxford Review of Economic Policy Limited, vol. 15(2), pages 128-142, Summer.
    • Handle: RePEc:oup:oxford:v:15:y:1999:i:2:p:128-42
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    Citations

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    Cited by:

    1. 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.
    2. Stefano Schiavo, 2005. "Euro bonds: in search of financial spillovers," Department of Economics Working Papers 0502, Department of Economics, University of Trento, Italia.
    3. 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.
    4. Alex Luiz Ferreira, 2004. "Are Real Interest Differentials Caused by Frictions in Goods or Assets Markets, Real or Nominal Shocks?," Studies in Economics 0407, School of Economics, University of Kent.
    5. Chinn, Menzie David & Frankel, Jeffrey A., 2003. "The Euro Area and World Interest Rates," Santa Cruz Department of Economics, Working Paper Series qt2nb2h4zr, Department of Economics, UC Santa Cruz.
    6. 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.
    7. Claeys, Peter & Moreno, Rosina & Suriñach, Jordi, 2012. "Debt, interest rates, and integration of financial markets," Economic Modelling, Elsevier, vol. 29(1), pages 48-59.
    8. repec:spo:wpmain:info:hdl:2441/7162 is not listed on IDEAS
    9. 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.
    10. Bonatti, Luigi & Cristini, Annalisa, 2008. "Breaking the Stability Pact: Was it predictable?," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 793-810.
    11. 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.
    12. 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.
    13. 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.
    14. repec:spo:wpecon:info:hdl:2441/7162 is not listed on IDEAS
    15. Steven B. Kamin, 2010. "Financial globalization and monetary policy," International Finance Discussion Papers 1002, Board of Governors of the Federal Reserve System (U.S.).
    16. Guglielmo Maria Caporale & Geoffrey Williams, 2002. "Long‐term nominal interest rates and domestic fundamentals," Review of Financial Economics, John Wiley & Sons, vol. 11(2), pages 119-130.
    17. Mr. Abhisek Banerjee & Mr. Manmohan Singh, 2006. "Testing Real Interest Parity in Emerging Markets," IMF Working Papers 2006/249, International Monetary Fund.
    18. repec:spo:wpmain:info:hdl:2441/1769 is not listed on IDEAS
    19. repec:spo:wpmain:info:hdl:2441/5221 is not listed on IDEAS
    20. Bruno Ducoudré, 2005. "Fiscal policy and interest rates," Documents de Travail de l'OFCE 2005-08, Observatoire Francais des Conjonctures Economiques (OFCE).
    21. Caravaggio, Nicola & Carnazza, Giovanni, 2022. "The Italian nominal interest rate conundrum: A problem of growth or public finance?," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 313-326.
    22. Enrique Martínez García & Yixiang Zhang, 2024. "The Contribution of Foreign Holdings of U.S. Treasury Securities to the U.S. Long-Term Interest Rate: An Empirical Investigation of the Impact of the Zero Lower Bound," Globalization Institute Working Papers 430, Federal Reserve Bank of Dallas.
    23. Peter Claeys & Rosina Moreno & Jordi Suriñach, 2010. "Fiscal Policy and Interest Rates: The Role of Financial and Economic Integration," Advances in Spatial Science, in: Antonio Páez & Julie Gallo & Ron N. Buliung & Sandy Dall'erba (ed.), Progress in Spatial Analysis, pages 311-336, Springer.
    24. repec:spo:wpecon:info:hdl:2441/1769 is not listed on IDEAS

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