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Sources of Variation in International Real Interest Rates

Author

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  • Gregory, Allan W.
  • Watt, David G.

Abstract

This paper analyses the effects of inflation on ex-post real interest rates in an international framework. A dynamic factor model is estimated in which real interest rates are influenced by real interest and inflation factors that are common to all the countries, and by country- specific factors. We find that the source of domestic inflation is an important determinant of the effect of inflation on real interest rates. A common inflation factor has a negative effect on ex-post real interest rates lending support to a form of the Mundell-Tobin effect in international real interest rates, and that a country-specific inflation factor tends to have a positive effect.
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Suggested Citation

  • Gregory, Allan W. & Watt, David G., 1995. "Sources of Variation in International Real Interest Rates," Queen's Economics Department Working Papers 273327, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:273327
    DOI: 10.22004/ag.econ.273327
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    2. Dungey, Mardi & Fry, Renee & Gonzalez-Hermosillo, Brenda & Martin, Vance, 2006. "Contagion in international bond markets during the Russian and the LTCM crises," Journal of Financial Stability, Elsevier, vol. 2(1), pages 1-27, April.
    3. Ms. Renee Fry & Mr. Vance Martin & Ms. Brenda Gonzalez-Hermosillo & Mr. Mardi Dungey, 2002. "International Contagion Effects from the Russian Crisis and the LTCM Near-Collapse," IMF Working Papers 2002/074, International Monetary Fund.
    4. Mardi Dungey & Vance L Martin & Adrian R Pagan, 2000. "A multivariate latent factor decomposition of international bond yield spreads," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(6), pages 697-715.
    5. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
    6. repec:spo:wpmain:info:hdl:2441/5221 is not listed on IDEAS
    7. Head, Allen C. & Smith, Gregor W., 2003. "The CCAPM meets Euro-interest rate persistence, 1960-2000," Journal of International Economics, Elsevier, vol. 59(2), pages 349-366, March.
    8. Imen Bedoui-Belghith & Slaheddine Hallara & Faouzi Jilani, 2023. "Crisis transmission degree measurement under crisis propagation model," SN Business & Economics, Springer, vol. 3(1), pages 1-27, January.

    More about this item

    Keywords

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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