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

Michal Brzoza-Brzezina and Jesus Crespo Cuaresma ()

Working Papers from Faculty of Economics and Statistics, University of Innsbruck

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: E43 C11 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2007-04
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Working Paper: Mr. Wicksell and the global economy: What drives real interest rates? (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:inn:wpaper:2007-06

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