Interest Rates and Foreign Spillovers

51 Pages Posted: 16 Jan 2019

See all articles by Roberto A. De Santis

Roberto A. De Santis

European Central Bank (ECB) - Directorate General Economics

Srecko Zimic

European Central Bank (ECB) - Directorate General Research

Date Written: January 15, 2019

Abstract

We show that medium-term interest rates in the euro area, Japan, UK and US are affected by domestic and foreign shocks. We find that US rates are the main source of spillovers globally and are less exposed to foreign shocks. Foreign spillovers to European rates were negligible only during the sovereign debt crisis and the introduction of more aggressive monetary policies by the ECB. We identify causal relations among asset prices through structural vector autoregressions (SVAR) and magnitude restrictions. We use preliminary regressions on event days to estimate key parameters employed to constrain the structural parameter space of the SVAR.

Keywords: money market rates, spillovers, event-study, magnitude restrictions, SVAR

JEL Classification: C3, G2

Suggested Citation

De Santis, Roberto A. and Zimic, Srecko, Interest Rates and Foreign Spillovers (January 15, 2019). ECB Working Paper No. 2221. Available at SSRN: https://ssrn.com/abstract=3316733

Roberto A. De Santis (Contact Author)

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Srecko Zimic

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

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