What Drives the Global Official/Policy Interest Rate?

12 Pages Posted: 1 Aug 2015 Last revised: 3 Aug 2015

See all articles by Ronald A. Ratti

Ronald A. Ratti

Western Sydney University - Department of Economics & Finance

Joaquin Vespignani

University of Tasmania - School of Economics and Finance

Date Written: July 1, 2015

Abstract

We construct a GFAVAR model with newly released global data from the Federal Reserve Bank of Dallas to investigate the drivers of official/policy interest rate. We find that 62% of movement in global official/policy interest rates is attributed to changes in global monetary aggregates (21%), oil prices (18%), global output (15%) and global prices (8%). Global official/policy interest rates respond significantly to increases in global output and prices and oil prices. Increases in global policy interest rates are associated with reductions in global prices and global output. The response in official/policy interest rate for the emerging countries is more to global inflation, for the advanced countries (excluding the U.S.) is more to global output, and for the U.S. is to both global output and inflation.

Keywords: Global interest rate, global monetary aggregates, oil prices, GFAVAR

JEL Classification: E44, E50, Q43

Suggested Citation

Ratti, Ronald A. and Vespignani, Joaquin, What Drives the Global Official/Policy Interest Rate? (July 1, 2015). CAMA Working Paper No. 27/2015. Available at SSRN: https://ssrn.com/abstract=2638169 or http://dx.doi.org/10.2139/ssrn.2638169

Ronald A. Ratti

Western Sydney University - Department of Economics & Finance ( email )

Sydney, NSW 1797
Australia

Joaquin Vespignani (Contact Author)

University of Tasmania - School of Economics and Finance ( email )

Commerce Building,
Sandy Bay Campus
Sandy Bay, TAS, Tasmania 7005
Australia

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