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Interest Rate Volatility And Macroeconomic Dynamics: A Cross-Country Analysis

Employing relatively novel computational techniques, this paper examines the relation between real interest rate volatility and macroeconomic dynamics for a diverse panel of countries. Empirically, we find that interest rate volatility is quite high and persistent overall, with estimates exhibiting non-negligible heterogeneity across countries. Moreover, we highlight that volatility increases at higher interest rate levels, while it is negatively correlated with measures of macroeconomic performance such as output, consumption and investment. Our analysis demonstrates that the empirical facts can be generated by a DSGE model augmented with stochastic volatility shocks.

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File URL: http://repec.library.villanova.edu/workingpapers/VSBEcon35.pdf
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Paper provided by Villanova School of Business Department of Economics and Statistics in its series Villanova School of Business Department of Economics and Statistics Working Paper Series with number 35.

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Date of creation: Apr 2017
Handle: RePEc:vil:papers:35
Contact details of provider: Web page: http://www.villanova.edu/business/facultyareas/economics/

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