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Measuring Global Interest Rate Comovements with Implications for Monetary Policy Interdependence

Author

Listed:
  • Renée Fry-McKibbin
  • Kate McKinnon
  • Vance L Martin

Abstract

A general measure of the strength of U.S. and local interest rate comovement is developed to identify changes in monetary policy interdependence between January 1999 and May 2020. Entropy theory captures comovements through second-order comoments and higher-order comoments of coskewness, cokurtosis and covolatility. The sample contains monthly short-term shadow rates, with local rates for Australia, Canada, Europe, Japan, New Zealand, Switzerland, and the U.K. Monetary policy overall became more interdependent during the Global Financial Crisis but progressively more independent after adopting unconventional monetary policy by central banks. Measures using second-order comoments do not entirely capture changes in interest rate interdependence.

Suggested Citation

  • Renée Fry-McKibbin & Kate McKinnon & Vance L Martin, 2022. "Measuring Global Interest Rate Comovements with Implications for Monetary Policy Interdependence," RBA Annual Conference Papers acp2022-07, Reserve Bank of Australia, revised Dec 2022.
    • Handle: RePEc:rba:rbaacp:acp2022-07
    Note: Paper presented at the RBA's annual conference 'The Causes, Challenges and Consequences of the Low Interest Rate Environment', Sydney, 28–29 June 2022.
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    Keywords

    entropy; generalised exponential family; higher-order comoment; decomposition; independence testing; zero-lower bound;
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