Understanding International Long-Term Interest Rate Comovement

Michael Chin, Ferre De Graeve, Thomai Filippeli () and Konstantinos Theodoridis

No E2018/19, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: Long-term interest rates of small open economies correlate strongly with the US long-term rate. Can central banks in those countries decouple from the US? An estimated DSGE model for the UK (vis-`a-vis the US) establishes three structural empirical results. (1) Comovement arises due to nominal fluctuations, not through real rates or term premia. (2) The cause of comovement is the central bank of the small open economy accommodating foreign inflation trends, rather than systematically curbing them. (3) Small open economies may find themselves much more affected by changes in US inflation trends than the US itself.

Keywords: DSGE Model; Small Open Economy; Yield Curve; Long-Term Interest Rates; Term Premia; Comovement (search for similar items in EconPapers)
JEL-codes: E43 E44 F30 F44 F65 G15 (search for similar items in EconPapers)
Pages: 88 pages
Date: 2018-07
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Chapter: Understanding International Long-term Interest Rate Comovement (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:cdf:wpaper:2018/19

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