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Mr. Wicksell and the global economy: What drives real interest rates?

  • Michal Brzoza-Brzezina

    ()

  • Jesus Crespo Cuaresma

    ()

We use a Bayesian dynamic latent factor model to extract world, regional and country factors of real interest rate series for 22 OECD economies. We find that the world factor plays a privileged role in explaining the variance of real rates for most countries in the sample, and accounts for the steady decrease in interest rates in the last decades. Moreover, the relative contribution of the world factor is rising over time. We also find relevant differences between the group of countries that follow fixed exchange rate strategies and those with flexible regimes.

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File URL: http://eeecon.uibk.ac.at/wopec2/repec/inn/wpaper/2007-06.pdf
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Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2007-06.

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Length: 29 pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:inn:wpaper:2007-06
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  2. Robert Ford & Douglas Laxton, 1995. "World Public Debt and Real Interest Rates," IMF Working Papers 95/30, International Monetary Fund.
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  17. Ardagna, Silvia & Caselli, Francesco & Lane, Timothy, 2004. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," CEPR Discussion Papers 4661, C.E.P.R. Discussion Papers.
  18. Adrian Orr & Malcolm Edey & Michael Kennedy, 1995. "The Determinants of Real Long-Term Interest Rates: 17 Country Pooled-Time-Series Evidence," OECD Economics Department Working Papers 155, OECD Publishing.
  19. Menzie D. Chinn & Jeffrey A. Frankel, 1995. "Who drives real interest rates around the Pacific Rim: the US or Japan?," Pacific Basin Working Paper Series 95-02, Federal Reserve Bank of San Francisco.
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  23. Clarida, Richard & Gali, Jordi & Gertler, Mark, 2002. "A simple framework for international monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 879-904, July.
  24. Thomas Laubach, 2003. "New evidence on the interest rate effects of budget deficits and debt," Finance and Economics Discussion Series 2003-12, Board of Governors of the Federal Reserve System (U.S.).
  25. Ardagna, Silvia & Caselli, Francesco & Lane, Timothy, 2004. "Fiscal discipline and the cost of public dept service: some estiames for OECD countries," Working Paper Series 0411, European Central Bank.
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