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Emerging Market Economies and the World Interest Rate

38 Pages Posted: 5 Jul 2014 Last revised: 23 Feb 2016

Berrak Buyukkarabacak

Ozyegin University

William D. Lastrapes

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Date Written: August 6, 2015

Abstract

We use a Factor Augmented VAR model to estimate the dynamic responses of interest rates in emerging market economies to the 'world' interest rate, which we extract from a dynamic factor model of yields in industrialized countries. Our results provide evidence that many emerging market yields respond to world rate shocks, at least gradually, which is broadly consistent with capital market integration. Our findings also suggest that the world rate captures information about emerging market yields not contained in US rates, which are typically used to proxy for the world rate.

Keywords: FAVAR, dynamic factor models, capital market integration, capital mobility

JEL Classification: O1, F3, F4

Suggested Citation

Buyukkarabacak, Berrak and Lastrapes, William D., Emerging Market Economies and the World Interest Rate (August 6, 2015). Journal of International Money and Finance, Vol. 58, 2015. Available at SSRN: https://ssrn.com/abstract=2462255

Berrak Bahadir

Ozyegin University ( email )

Kusbakisi Cd. No: 2
Altunizade Uskudar
Istanbul, 34662
Turkey

William D. Lastrapes (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Terry College of Business
Athens, GA 30602-6254
United States
706-542-3569 (Phone)
706-542-3376 (Fax)

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