Mr. Wicksell and the global economy: What drives real interest rates?

Michal Brzoza-Brzezina and Jesus Crespo Cuaresma

Working Papers from Oesterreichische Nationalbank (Austrian Central Bank)

Abstract: We use a Bayesian dynamic latent factor model to extract world, regional and country factors of real interest rate series for 22 OECD economies. We find that the world factor plays a privileged role in explaining the variance of real rates for most countries in the sample, and accounts for the steady decrease in interest rates in the last decades. Moreover, the relative contribution of the world factor is rising over time. We also find relevant differences between the group of countries that follow fixed exchange rate strategies and those with flexible regimes.

Keywords: Real interest rates; natural rate of interest; Bayesian dynamic factor models. (search for similar items in EconPapers)
JEL-codes: C11 E43 E58 (search for similar items in EconPapers)
Pages: 35
Date: 2008-01-29
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Mr. Wicksell and the global economy: What drives real interest rates? (2007)
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