Global Transmission of Interest Rates: Monetary Independence and Currency Regime
46 Pages Posted: 8 Mar 2002 Last revised: 17 Aug 2022
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Global Transmission of Interest Rates: Monetary Independence and Currency Regime
Global Transmission of Interest Rates: Monetary Independence and Currency Regime
Global Transmission of Interest Rates: Monetary Independence and Currency Regime
Date Written: March 2002
Abstract
Using a large sample of developing and industrialized economies during 1970-1999, this paper explores whether the choice of exchange rate regime affects the sensitivity of local interest rates to international interest rates. In most cases, we cannot reject full transmission of international interest rates in the long run, even for countries with floating regimes. Only large industrial countries can benefit, or choose to benefit, from independent monetary policy. However, short-run effects differ across regimes. Dynamic estimates show that interest rates of countries with more flexible regimes adjust more slowly to changes in international rates.
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