Does Fed Funds Target Interest Rate Lead Bank of England’s Bank Rate and European Central Bank’s Key Interest Rate?

14 Pages Posted: 16 Apr 2009 Last revised: 1 Sep 2009

See all articles by Sadullah Çelik

Sadullah Çelik

Marmara University FEAS Department of Economics

Pinar Deniz

Marmara University - Department of Economics

Date Written: April 14, 2009

Abstract

It has been a long debate whether Fed Funds target interest rate (FFTR) has significant explanatory power on interest rates in other countries. In this paper, we analyze the effects of FFTR on Bank of England (BOE) bank rate and European Central Bank (ECB) key interest rate employing - the rather new and trustworthy technique of-Bounds testing developed by Pesaran (2001). Our empirical results are consistent with a priori expectations as BOE and ECB interest rates are highly dependent on FFTR. This finding can be interpreted as a clear signal of how globally tight-knit the world currencies have been. Moreover, it emphasizes the importance of US dollar as the world currency and rather serves as an argument against alternative global currency propositions.

Keywords: Interest Rates, Monetary Policy, Bounds Testing

JEL Classification: C29, E4, E43, F42

Suggested Citation

Çelik, Sadullah and Deniz, Pinar, Does Fed Funds Target Interest Rate Lead Bank of England’s Bank Rate and European Central Bank’s Key Interest Rate? (April 14, 2009). Available at SSRN: https://ssrn.com/abstract=1381021 or http://dx.doi.org/10.2139/ssrn.1381021

Sadullah Çelik

Marmara University FEAS Department of Economics ( email )

Goztepe Campus
Istanbul
Turkey
+902163368487 (Phone)
+902163464356 (Fax)

HOME PAGE: http://posta.marmara.edu.tr/~scelik

Pinar Deniz (Contact Author)

Marmara University - Department of Economics ( email )

Istanbul
Turkey

HOME PAGE: http://https://sites.google.com/site/pinardenizresearch/

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