Long-Term Real Interest Rates: The G7 Affair Revisited
36 Pages Posted: 19 Jul 2012
Date Written: July 19, 2012
Abstract
There is a growing literature of theoretical models and empirical advances that has led most researchers to subscribe to the view that national macroeconomic indicators are the crucial determinants of equilibrium interest rates. This paper revisits the causal structure linking the G7 long-term real interest rates by examining whether larger and more stable economies can achieve bilateral policy objectives more successfully by accommodating rather than driving other countries’ policies. Contrary to conventional priors, it seems that international developments are equally important to national monetary factors. Conditioning on the increasingly integrated financial markets, new evidence is provided concerning the asymmetry dimension of global US hegemony pointing towards a joint with EU/Germany worldwide leadership hypothesis.
Keywords: monetary policy, real interest rates, irreducible cointegrating vectors, exogeneity tests, German leadership hypothesis, US worldwide dominance hypothesis
JEL Classification: C30, C51, E61, F30, F36, G15
Suggested Citation: Suggested Citation
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