Global Transmission of Interest Rates: Monetary Independence and Currency Regime

Jeffrey Alexander Frankel (), Sergio Schmukler () and Luis Servén

No 8828, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using a large sample of developing and industrialized economies during 1970-1999, this paper explores whether the choice of exchange rate regime affects the sensitivity of local interest rates to international interest rates. In most cases, we cannot reject full transmission of international interest rates in the long run, even for countries with floating regimes. Only large industrial countries can benefit, or choose to benefit, from independent monetary policy. However, short-run effects differ across regimes. Dynamic estimates show that interest rates of countries with more flexible regimes adjust more slowly to changes in international rates.

JEL-codes: F31 F32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn and nep-lam
Date: Written 2002-03
Note: IFM
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Published as Frankel, Jeffrey, Sergio L. Schmukler and Luis Serven. "Global Transmission Of Interest Rates: Monetary Independence And Currency Regime," Journal of International Money and Finance, 2004, v23(5,Sep), 701-733.

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