International Interest Rate Differentials: The Interaction with Fiscal and Monetary Variables, and the Business Cycle

CREFE Working Paper 56

Posted: 9 Mar 1998

See all articles by Paul Fenton

Paul Fenton

Government of Canada - International Relations Department

Alain Paquet

University of Quebec at Montreal (UQAM) - Centre de recherche sur l'emploi et les fluctuations économiques (CREFÉ)

Date Written: 1998-01

Abstract

Adapting Den Haan's (1996) methodology based on VARs, this paper documents stylized facts about various deviations from international no arbitrage conditions between Canada and the United States. The calculated statistics provide important information about the dynamics of the economic variables that is lost when the focus is solely on unconditional correlation coefficients. In particular, we find that a higher public debt path and slower economic growth in Canada are associated with higher real interest rates in that country relative to that of the US. These results may suggest that international interest rate differentials reflect, at least in part, a risk premium.

JEL Classification: E44, F3, G15

Suggested Citation

Fenton, Paul and Paquet, Alain, International Interest Rate Differentials: The Interaction with Fiscal and Monetary Variables, and the Business Cycle (1998-01). CREFE Working Paper 56, Available at SSRN: https://ssrn.com/abstract=64770

Paul Fenton (Contact Author)

Government of Canada - International Relations Department ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada
514-987-6181 (Phone)
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Alain Paquet

University of Quebec at Montreal (UQAM) - Centre de recherche sur l'emploi et les fluctuations économiques (CREFÉ) ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada
514-987-3000 ext. 8371# (Phone)
514-987-8494 (Fax)

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